What is AAVE?

What is AAVE?

By chris04 | Crypto faucet | 15 Feb 2021


What is AAVE?

AAVE is the native governance token of the Aave protocol and is based on Ethereum's ERC-20 protocol.

Aave, as detectable by Defipulse, is one of the main decentralized finance protocols (DEFI) and the AAVE token is among the largest DeFi coins by market capitalization (see on Coingecko). On the platform, participants can easily borrow or lend their cryptocurrencies in a decentralized way and thereby earn a regular and safe return on their otherwise non-interest-bearing capital.

Aave is an algorithmic money market, which means that loans are obtained from a pool instead of being individually matched to a lender.
The interest rate charged depends on the "utilization rate" of the assets in a pool. If nearly all the assets in a pool are used, the interest rate is high to entice liquidity providers to deposit more capital. If almost no assets in a pool are used, the interest rate charged is low to entice you to borrow.

Aave also allows users to borrow in a different cryptocurrency than the one they deposited. For example, a user can deposit Ethereum (ETH), then withdraw stablecoins to deposit into Yearn.finance (YFI) to earn a regular return.

Like all DEFI platforms, all loans are over-secured. This means that if you wanted to borrow $ 100 worth of cryptocurrency through Aave, you would need to deposit more than that amount.

Due to the volatility of cryptocurrencies, Aave includes a liquidation process. If the collateral you provide falls within the collateral relationship specified by the protocol, your collateral can be liquidated. Please note that a commission is charged in the event of liquidations.

A service where Aave is expanding are flash loans, which are unsecured loans that exist only for the span of one block of Ethereum. this allows those without large amounts of capital to arbitrate and implement other opportunities, all within a single blockchain transaction. For example, if you see Ethereum trading for 500 USDC on Uniswap and 505 USDC on another decentralized exchange, you might try to arbitrate the price difference by borrowing a large amount of USDC and making quick trades.

In addition to flash loans and other features, Aave is also working on a non-fungible token game (NFT) called Aavegotchi.

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Disclaimer: This article reflects its author’s opinion only and is not financial advice. We take no responsibility for the results of any trader’s decision or action.  

 


chris04
chris04

Enthusiastic about crypto assets since 2017 and youtuber


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