Aave (AAVE) is a decentralized finance (DeFi) lending platform that allows users to lend, borrow, and earn interest on crypto assets. It operates as a decentralized money market protocol, with borrowers paying variable interest rates and lenders providing liquidity to the market to earn passive income. Aave aims to create an open and transparent system, eliminating the need for intermediaries. It runs on the Ethereum blockchain and uses smart contracts to manage funds and enable instant loans.
History of Aave
Aave was launched in January 2017 by developer Stani Kulechov, a Finnish programmer who is currently the CEO of Aave. He graduated from the University of Helsinki in 2018 and has experience in the crypto technology, fintech, and blockchain space. Aave was initially called Ethland but was renamed in 2018. The platform conducted an ICO on November 29, 2017, raising $17.86 million. Aave's whitepaper was released in January 2020, and the V2 protocol's mainnet went live on December 3, 2020.
How does Aave work?
The Aave protocol is a system of smart contracts that manages funds and enables instant loans. The protocol algorithmically determines interest rates for borrowers and lenders based on various factors, such as the funds available in the pool and the amount the borrower requires. Aave offers two key innovations: stable interest rates for financial planning and flash loans that don't require collateral and can be used for arbitrage opportunities.
AAVE is the native token of the Aave platform, an ERC-20 token primarily used as a governance token. It is used for voting on Aave improvement proposals (AIPs) and offers transaction fee discounts to users who deposit AAVE as collateral. Aave is a deflationary token, with approximately 80% of the collected fees being used to burn AAVE, reducing token availability and increasing token value.
How are new AAVE tokens created?
New AAVE tokens are created through staking, where users deposit their AAVE tokens within the protocol. Staking acts as a mitigation tool in case of a shortfall event, where the protocol uses 30% of the staked assets to cover the deficit. The protocol rewards liquidity providers with 550 new AAVE tokens per day, split among stakers according to their contribution. Users can stake AAVE by visiting the Aave app's staking section and connecting their wallet.
Aave has emerged as a significant player in the DeFi landscape, offering innovative lending solutions and a transparent, decentralized platform. With its unique features and growing adoption, Aave continues to attract interest from both borrowers and lenders in the world of digital finance.