Defi Review #4: AAVE The Defi Lending Services

Defi Review #4: AAVE The Defi Lending Services

By xuanling11 | Crypto Learning | 29 Dec 2021

AAVE is a decentralized finance lending service before decentralized finance even existed. It is an innovation lending service in crypto and one of the first kind. However, the lending service may only restrict to the crypto community and it may expand into the traditional financial field later. 



AAVE is a crypto lending financial service which to provides lending services to the crypto community. They focus on security and smart contract lending may be the future of financial services.


Here is a 1 min summary of the article if you want to skip the reading.

What is AAVE


AAVE means ghost in Finnish. It was originally created as ETHLend that was launched in November 2017 but rebrand its name in September 2018. The creation of AAVE was to fill a hole in the lack of lending applications on Ethereum. It wants to create a P2P lending strategy without third-party involvement. A pool-based strategy is that a loan does not need to be individually matched but relies on the pooled funds and the amounts borrowed with their collateral.


Why Choose AAVE


AAVE uses Automated Market Makers (AMMs) to match loans and users. The idea was borrowed from Uniswap to create a liquidity pool and to fund money to lend to users. There are collateral launches through both Uniswap V2 and Balancer as a cross-blockchains solution to provide more liquidity and build up secured liquidity pools. It is open-source, community-driven governance to continue evolving its codes and improve through proposals.


Goals of AAVE


Since AAVE V2 launched in December 2020, the platform expended more selections on types of cryptocurrencies. It included not only collateral swap but also yield swap in one platform. The platforms improved flash loans and flash liquidations. It creates debt tokenization and smart contract credit delegation that allow users to include loan agreements in the smart contract while earning extra yield on the top of the yield from the protocol and borrowers to access an uncollateralized loan. 


AAVE Focus on Security



When it comes to loans and borrowing, the security of the protocol is important to protect and prevent investors’ funds from hackers. AAVE has been audited by more than 5 auditors and their smart contracts have them upgraded with the design of a guardian role with permissions to cancel proposals in order to have a safeguard against malicious attackers. A guidance role has a multi-signature feature which allows 5 of 10 signatures needed. The loan users execute through is an implementation contract of the LendingPool proxy rather than direct interaction of the funds. This additional layer prevents hackers from directly accessing funds and siphoning away while protecting investors to secure their funds.


Holders From AAVE 


Holders are diverting between its protocols and exchange platforms mainly they have enough funds and power to provide enough liquidity pools. 


Risks With AAVE 


One of the significant risks is that hackers can become more sophisticated to invent a new attack on the liquidity pools and potentially access funds from investors. That is why AAVE will have to spend more resources on security and protecting its funds.


In Conclusion

AAVE is definitely an innovation on Defi for lending and borrowing. Security is critical for their protection to succeed in the long term.

This article is also published in Cryptologist as parnership publication.
Note: the post was shared on multiple platforms here.

You can refer my previous article lists here and here

Below are my previous Defi articles for references:
DeFi Swap: Great Returns come with Great Cost
Defi: A Rainbow 5-Layers Cake
Robot Sucks: How Lousy Jobs AMMs Did to Ruin the DeFi
Defi Winter: What May Come After the Bubble Pops
Defi Winter?! When Stablecoins Become CBDCs
Defi Manual
Defi Manual: Part 1 - Cefi vs. Defi
Defi Manual: Part 2 - Regulations
Defi Manual: Part 3 - Financial Weapons
Defi Manual: Part 4 - Market Manipulation
Defi Manual: Part 5 - Synergies
Defi Review
Defi Review #0: Why I Focus on DeFi
Defi Review #1: Uniswap The Market Maker
Defi Review #2: MakerDAO The Collective Wealth
Defi Review #3: Chainlink The Global Smart Contract Data Portal
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