Hey guys :) I’m back with another exciting Q&A piece for a crypto that’s been performing extremely well as of late – Aave (LEND).
Aave is an innovative DeFi lending & borrowing protocol with a cryptocurrency token (LEND) which offer unique services such as Flash Loans and many others. The project has experienced tremendous growth as of 2020, both in market cap and locked USD in the protocol.
Hope you enjoy!
The list of Q&A is kind of long so first comes the list of questions that I have prepared the answers to:
- What is Aave?
- Who and When Created Aave?
- Why was ETHLend rebranded to Aave?
- Can you Mine Aave?
- What is Aave’s Token LEND Used for?
- What Cryptocurrencies can be used as loan collateral?
- What is a Flash Loan?
- Where to store Aave’s LEND?
- Where to Buy & Sell Aave’s LEND?
1. What is Aave?
Aave website homepage
Aave is an open-source and non-custodial DeFi (Decentralized Finance) protocol that enables you to lend and borrow digital assets. There are two types of participants in the Aave protocol, Lenders and Borrowers.
The protocol enables lenders to earn interest (passive income) on deposits for providing the market with liquidity. As for borrowers, they are able to borrow in an overcollateralized (perpetually) or undercollateralized (one-block liquidity) fashion.
How does the Aave protocol work?
Aave has implemented a set of non-custodial smart contracts on top of the Ethereum blockchain, which provides a certain degree of safety and reliability without relying on trusted third parties (middlemen).
Users and applications interacting with Aave can do so directly through Aave’s smart contracts and blockchain data, or through their favorite web3 providers.
Important Aave Features
The Aave protocol mints ERC20-compliant tokens at a 1:1 ratio to supplied assets. These tokens are called Aave interest-bearing tokens (aTokens for short) and they are minted upon deposit and burned when redeemed.
For example, if you deposit 10 Dai, the protocol will mint 10 aDai which can then be freely stored, transferred, and traded. When the underlying asset (Dai for example) is loaned out to borrowers, the corresponding aTokens earn interest in real-time, directly in your wallet. And this earned interest can be redirected to any Ethereum public address at any time.
See further down below, a complete list of cryptocurrencies that can be used as loan collateral and minted as an aToken.
What’s unique about Aave compared with other DeFi lending protocols is that Aave enables borrowers (users who take out loans) to switch between variable and stable interest rates at any time. This feature gives the borrower more control over their loans by allowing them to always secure the best available rate.
Another unique feature Aave offers is Flash Loans, which is the first uncollateralized loan option in DeFi. Aave’s Flash Loans can be trustless and uncollateralized because borrowing and repayment must occur in the same transaction block. If not in the same transaction block, then the whole transaction is reversed.
This innovative feature is aimed towards developers to implement features such as arbitrage, collateral swapping, self-liquidation, and many more in their DeFi applications.
2. Who and When Created Aave?
Stani Kulechov – Founder and CEO of Aave.
Aave was founded in 2017 by Stani Kulechov, who initially named the project ETHLend but later rebranded to Aave in September 2018.
Kulechov is not only the founder of Aave but also its CEO who manages a team of 17 core contributors to the project.
Prior to founding Aave and getting involved in the blockchain space, Kulechov was an avid programmer and studied law at the University of Helsinki where he obtained a Master’s Degree. During his studies, Kulechov got involved in a lot of fintech communities and witnessed the rise and power of Bitcoin firsthand.
However, it wasn’t until Ethereum launched with its introduction of smart contracts and immutable code that got Kulechov really excited.
Then in 2017, while Kulechov was still enrolled in University, he launched his first proof of concept DeFi project on Ethereum, ETHLend. At the time, DeFi wasn’t even a thing and ETHLend was the first lending application on Ethereum.
ETHLend has since evolved from a proof of concept to a full-blown, popular DeFi protocol. Aave is currently (May 12, 2020) ranked 4th on DefiPulse with a $49.3M locked (USD) value.
Aave (LEND) ICO & Token Distribution
The ETHLend initial coin offering (ICO) was held in November 2017 and raised $17,900,000 USD (37,600 ETH) in exchange for 1 billion LEND tokens.
An additional 300,000,000 LEND tokens (30%) were not included in the token sale, as they are reserved to fund development and support the project.
The breakdown for the 300M LEND tokens reserved for development is as follows:
- 30% on core development
- 20% on user experience development
- 20% on management & legal
- 20% on promotions & marketing
- 10% on unexpected costs
3. Why was ETHLend rebranded to Aave?
ETHLend rebranded to Aave because the name “ETHLend '' was largely bound to “ETH” and “Lending”. However, Aave can do so much more than that. The project has since released many innovative features, supports many cryptocurrencies besides ETH, and intends to integrate with Bitcoin as well.
Therefore, the name “Aave” which is Finnish for “ghost”, better represents the mantra of the innovative DeFi protocol project. The ghost represents Aave’s focus on creating a transparent and open infrastructure for decentralized finance.
Aave ghost logo
Also, Aave’s founder, Stani Kulechov is originally from Finland, which is why he chose the Finnish word for 'ghost' as the name for his project.
All in all, the rebrand from ETHLend to Aave was to create a playful brand that provides DeFi uses beyond lending and only using ETH.
4. Can you Mine Aave?
No, you cannot mine Aave (LEND).
Aave’s native cryptocurrency LEND is an ERC-20 token that’s already secured by the underlying Ethereum blockchain. Therefore, Proof-of-Work (PoW) mining is not required to secure the Aave project and validate LEND transactions.
That said, the entire total supply of LEND tokens has already been minted and distributed into circulation. The total and circulating supply of LEND is 1,299,999,942 LEND.
5. What is Aave’s Token LEND Used for?
LEND token logo
LEND is Aave’s native governance token and is used to control the protocol. The LEND token will have various value-added use cases as the protocol develops and will ultimately provide the ability to get rid of Aave’s central power and transfer it into the hands of the community.
Currently LEND has the following use cases:
- Paying protocol fees
- Consumptive burning
- Rewarding lenders
- Compensating affiliates
- Platform governance
LEND is used to pay protocol fees; 0.25% of originated loans and 0.09% of flash loans. These fees are paid for in LEND when using Aave ecosystem products and services, and they go towards burning LEND, rewarding lenders, and compensating affiliates.
6. What Cryptocurrencies can be used as loan collateral?
The Aave DeFi protocol currently supports the following crypto assets for collateralized loans:
- Ethereum (ETH)
- Wrapped BTC (WBTC)
- Aave (LEND)
- Multi-collateral Dai (DAI)
- Chainlink (LINK)
- MakerDAO (MKR)
- 0x (ZRX)
- Decentraland (MANA)
- True USD (TUSD)
- sUSD (SUSD)
- USD Coin (USDC)
- Kyber Network (KNC)
- Basic Attention Token (BAT)
- Augur (REP)
- Tether (USDT)
- Synthetix (SNX)
Note that the above-listed tokens are all ERC-20 tokens residing on the public Ethereum blockchain.
Even Wrapped Bitcoin (WBTC) is an ERC-20 token and not actually Bitcoin (BTC). WBTC is the first ERC20 token backed 1:1 with Bitcoin. It’s completely transparent, 100% verifiable, community-led, and brings BTC to Ethereum DeFi.
7. What is a Flash Loan?
Aave’s “Flash Loans” is super interesting and very innovative as its the first type of loan that does not require collateral, unlike Maker’s Dai and other DeFi lending products.
Flash Loans enable you to borrow instantly and easily, (with no collateral backing it up), provided that the liquidity is returned to the pool within one transaction block. If this doesn’t happen, not to worry. The entire transaction will be reversed, guaranteeing the safety of the funds in the reserve pool.
This innovative new feature has quickly allowed new creative ideas to become reality and Ethereum developers are having a heyday with it. Flash Loans are being used for arbitrage, collateral swapping, self-liquidation, and many more use cases.
Aave Flash Loan example:
Say, you have taken a loan in ETH at a 10% interest rate at platform X, but then you find another protocol or provider Y with a 5% interest rate. Here are the steps to refinance the debt to 5% using Aave Flash Loans:
- Borrow the flash loan in ETH from Aave
- Pay back your debt on the platform X
- Borrow ETH on platform Y at 5%
- Payback your flash loan at Aave
While these steps may look complicated at first, once developers get their hands on Aave and develop beautifully designed UX platforms that leverage Aave’s protocol, the entire flash loan process will be done within a few clicks on one interface.
And keep in mind, this is something that can't be done with fiat money. Only DeFi programmable money allows for such actions.
8. Can You Use Aave Without Buying LEND?
Yes, you can use Aave without buying LEND.
Whilst many crypto platforms require its users to buy its native token to use it, with Aave you can deposit any ERC-20 token and start earning interest without touching LEND.
However, LEND is used under the surface to pay for fees on the Aave protocol and is burned when doing so. That said, LEND is a deflationary asset, which is an attractive attribute to cryptocurrency investors.
In addition to paying Aave protocol fees and getting burned, Aave is also planning on using its LEND token for governance amongst various other value-added use cases.
But at the time of this writing and for the foreseeable future, Aave users are not required to buy or hold any LEND tokens to use the Aave DeFi protocol.
9. What is the Credit Delegation?
Aave’s Credit Delegation (CD) feature enables Aave depositors to delegate their credit lines to someone else so that this ‘someone else’ can then draw funds such as ETH from Aave Protocol.
Aave’s Credit Delegation feature was only just recently launched on July 7, 2020.
This Credit Delegation feature is quite innovative in the realm of Ethereum DeFi and has never been done before in a decentralized fashion using blockchain technology and smart contracts.
So, to break it down simply; Aave’s Credit Delegation feature essentially allows someone to take out a digital asset loan on Aave by using someone else’s credit line.
There is an agreement between the two parties with terms such as repayment, interest rate and covenants, and OpenLaw is used to sign and enforce the agreement. Once the agreement is signed, a CD vault smart contract can be created and the party delegating a credit line is able to earn higher undercollateralized lending rates while depositing to Aave, and the party taking out the loan is able to source liquidity from Aave without collateral.
What if the borrower stops repaying his loan?
Per information provided by the CEO himself, uncollateralized loans will rely on the trust between the two parties. However, it is being said that insurance products will emerge atop of this mechanism.
All in all, Aave’s Credit Delegation feature is expected to bring new composability into DeFi and is yet another step forward for the DeFi movement.
10. Where to store Aave’s LEND?
Aave (LEND) is an ERC-20 token operating on the public Ethereum blockchain which allows it to be stored in a wide variety of reputable cryptocurrency wallets. LEND can be stored in any crypto wallet that supports ERC-20 tokens.
Most Popular Aave (LEND) Crypto Wallets:
- MyEtherWallet (MEW) (Web Wallet)
- MyCrypto (Web Wallet)
- Ledger Nano S (Hardware Wallet)
- Trust Wallet (Mobile Wallet)
- Atomic Wallet(Desktop Wallet)
11. Where to Buy & Sell Aave’s LEND?
Aave (LEND) can be bought and sold on a peer-to-peer (P2P) basis but the most popular way to buy, sell, or trade Aave is through cryptocurrency exchanges.
You can buy LEND with cryptocurrency or fiat at the following top exchanges. In most cases, you will have to fund your account with fiat, buy Bitcoin or Ethereum, and then use BTC or ETH to buy Aave (symbol LEND).
- Binance - BTC, ETH
- UniSwap - ETH
- Gate.io - ETH, USDT
- Bibox - BTC, ETH
- Alterdice - BTC, ETH
In addition to the exchanges listed above, Aave (LEND) is also traded on a wide array of other exchanges and platforms that enable people to buy, sell, or trade cryptocurrencies.
Hope you enjoyed that read :) Let me know if I have missed something in the comments.