E&S: Aave, the money market protocol

E&S: Aave, the money market protocol


Hi Publish0x community, welcome back to this second article dedicated to Aave! We are again in my new “Easy and Short. Cryptocurrency made accessible” section, created with the aim of introducing the reader to many tokens (often hidden from the spotlight) with valid projects, and facilitate their understanding with 2 articles each.

In this second article dedicated to Aave, I will talk about more technical details and peculiarities of the token.

Have you already read the first part about Aave? If you missed it, you can recover it here.

Today I want to focus on five issues:

  • Aave Token Migration
  • Aave Staking
  • Aave Protocol Governance
  • Aave Incentives
  • Aave V2

1: From LEND to AAVE

The migration to AAVE marks the first step in transitioning governance power from the Aave core team to AAVE token holders.

Often referred to as ETHLend, the Lend token is the native token of Aave following the winding-up of operations by ETHLend in January this 2020. Although it has kept the name, the new Aave version of Lend is a step beyond the previous one.

Briefly, the ERC-20 LEND tokens are used for fee reductions in addition to providing governing rights at a base-code level for future protocol updates. The tokens are burned from fees accrued from the Aave protocol, suggesting that tokens could worth more over time. The protocol went live in January 2020, supporting 16 different assets including 5 stablecoins. In June 2020, Aave reported having reached as much as $100 million in market cap.

LEND will migrate to AAVE at a rate of 100 LEND per 1 AAVE, with the supply changing from 1.3B LEND to 16M AAVE. Of the 16M AAVE being issued, 13M AAVE tokens will be redeemed by LEND holders and 3M AAVE tokens will be held in an Aave Ecosystem Reserve for protocol incentives.

To start the migration, LEND will be used to vote on the Genesis Governance poll to deploy the smart contracts responsible for converting LEND to AAVE.

2: Aave Staking. Have you already heard about staking?

You can think of staking as an alternative to mining that requires less resources. It involves holding funds in a cryptocurrency wallet to support the security and operations of a blockchain network. Simply put, staking is the act of blocking cryptocurrencies to receive rewards.

I have already written an article where I explained the TRX staking, if you missed it click here.

You will also find a free video tutorial that will help you starting the stake of TRX in a few steps!

Aave will be secured by a safety module, a staking mechanism for AAVE tokens to act as insurance against shortfall events. Stakers earn AAVE as safety incentives along with a percentage of protocol fees.

Staked AAVE will be freely tradable after a cooldown period. All rewards accrue in real-time and are distributed as AAVE is withdrawn or transferred from the Safety Module.

Aave

Image source: https://aave.com

3: Aave Protocol Governance

The rights of the protocol are controlled by the LEND token. Initially, the Aave Protocol will be launched with a decentralized on-chain governance based on the DAOStack framework which will evolve to a fully autonomous protocol. On-chain implies all votes are binding: actions that follow a vote are hard-coded and must be executed.

To understand the scope of the governance it’s important to make a distinction:

  • The Aave Protocol is bound to evolve and will allow the creation of multiple lending pools with segregated liquidity, parameters, permissions and type of assets.
  • The Aave Lending Pool is the first pool of the Aave protocol until the Pool Factory Update is released and anyone can create their own pool.

Within the Aave Protocol, the governance will take place on two levels:

  • The Protocol’s Governance voting is weighted by LEND for decisions related to protocol parameters and upgrades of the smart contract. It can be compared to MakerDAO’s governance where stakeholders vote on current and future parameters of the protocol. If you want to know more about MakeDAO click here.
  • The Pool’s Governance where your vote is weighted based on your share of pool liquidity expressed in aTokens. The votes cover pool specific parameters such as assets used as collateral or going to be borrowed. Each Pool will have its own governance, under the umbrella of the Protocol’s Governance.

4: Aave Incentives

The Aave Protocol will be able to distribute Ecosystem Incentives for supplying and borrowing assets from the protocol.

The Ecosystem Incentives represents the part of the periodic issuance of AAVE used to incentivize liquidity providers, software developers and integrators to build value within the Aave ecosystem.

The community may also decide to allocate rewards to applications built on top of the Aave ecosystem. The decision to integrate new incentives will be performed through decentralized governance.

5: Aave V2

A very recent news concern about Aave V2.

A while ago, the Genesis Team released this plan outlining some features coming out with Aave V2, making finance a more seamless experience. Today, Aave V2 is live on the Kovan testnet.

Since the beginning of 2020 when the Aave Protocol first launched, the Genesis Team has collected feedback from the community which has been invaluable in making improvements to the protocol. Now the governance power is in your hands, and the Genesis Team will take on the role of builders who gather popular proposals on the governance forum, and enact the updates voted on by the governance.

Aave V2 is the realization of community feedback that brings some architecture redesign to upgrade the protocol, along with some exciting new features to push the limits of the DeFi user experience.

You can check and test the Aave V2 on the testnet client at this link: https://testnet-v2.aave.com/.

Aave

Whit this second article on Aave we have discovered a lot of peculiarities of this great project!

Aave improves DeFi’s current offering, bringing two key innovations to the lending ecosystem:

  • Stable Rates to help borrowers’ financial planning;
  • Flash Loans to borrow without collateral during a single transaction.

Do you like the Aave project? Have you already lended or borrowed crypto with Aave?

Keep following me to find out the next coin I’m going to analyze.

Leave a comment and share your experience with Aave! If you would like to see analyzed any particular coin, let me know in a comment and your desire may find fulfillment!



Easy&Short. Cryptocurrencies made accessible
Easy&Short. Cryptocurrencies made accessible

In this section, we are going to create two article per each cryptocurrency/token. The first one will be technical, with a simplification of the Whitepaper and the second one will be about particulars of the coin. For example staking yields, particular functions and so on! I am sure you will like this very much!

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