AAVE and Aave Protocol - Stable Rate Model, Flash Loans & more

AAVE and Aave Protocol - Stable Rate Model, Flash Loans & more

By CryptoKraut | Showcase | 15 Dec 2020

New to Publish0x? Register here and start earning crypto everytime you read or write an article.​

What is the Aave Protocol

The birth of the Aave Protocol marks a shift from a decentralized P2P lending strategy (direct loan relationship between lenders and borrowers, like in ETHLend) to a pool-based strategy. Lenders provide liquidity by depositing cryptocurrencies in a pool contract. Simultaneously, in the same contract, the pooled funds can be borrowed by placing a collateral. This enables instant loans with characteristics based on the state of the pool.
Flash loans temporarily transfer the funds to a smart contract that respects the IFlashLoanEnabledContract. After the funds are transferred, the method executeOperation() is executed on the external contract. The contract can do whatever action is needed with the borrowed funds. The Aave protocol implements a tokenization strategy for liquidity providers.

Aave Protocol relies on a lending pool model to offer high liquidity. Loans are backed by collateral and represented by aTokens, derivative tokens which accrue the interests. The stable rate of a user x is rebalanced to the most recent value of Bs when a user could earn interest by borrowing.

Stable Rate Model

Aave also includes a stable rate model that aims to lower interest rate volatility in order to protect borrowers. A nuanced tokenisation model using rate switching and perpetual loans is beeing used. To mitigate the risks for the liquidity provider all loans, with the exception of Flash loans, are over collaterized.

Who stands behind CryptoKraut? We are a team of German crypto-investors and crypto-traders. Follow us on Publish0x and on Twitter to never miss any news.

How do you rate this article?




German team of crypto-investors and crypto-traders.


This blog contains articles on various crypto projects. If you want to see a specific project here, don't hesitate to contact us.

Send a $0.01 microtip in crypto to the author, and earn yourself as you read!

20% to author / 80% to me.
We pay the tips from our rewards pool.