Agave is a decentralized, non-custodial money market and borrowing-lending protocol. Users can interact with the protocol by depositing liquidity (lending) or by providing collateral and taking out loans (borrowing).
Although Agave is a fork of Aave, a popular lending protocol running on Ethereum mainnet, Agave has been deployed on xDai Network, a sidechain of Ethereum that allows for significantly faster and cheaper transactions. Agave is currently under active development by members of the 1Hive DAO.
By interacting with Agave, liquidity providers can earn rewards in the form of interest on their deposited funds and borrowers can borrow funds in an overcollateralized (i.e., perpetually) or an undercollateralized/one-block liquidity fashion (i.e., flash loans).
How does Agave work?
Users who choose to deposit tokens into the protocol will receive an aToken in return. The aToken functions as a receipt for the deposited funds, and simultaneously accrues interest. Upon depositing, users will have the option to enable their deposit to be used as collateral and can then choose to use this collateral to borrow other assets. This is functionally equivalent to offering a leverage facility. For example, if a user deposits HNY, they will be able to use that deposited stake in HNY as collateral to borrow DAI, which can be further used to buy more HNY.
How does Agave contribute to the 1Hive DAO?
Honeyswap, a fork of the popular Ethereum-based decentralized exchange Uniswap, was deployed in 2020 on xDai by the 1Hive DAO. Honeyswap offers faster and cheaper transactions than Uniswap with a near-identical user interface. Following the launch of Honeyswap, 1Hive created liquidity mining farms rewarded in HNY in order to incentivize users to provide liquidity to the exchange. This implementation had mixed results, and was ultimately deemed unsuccessful by the majority of the community.
Beyond the baseline rewards for providing liquidity to Honeyswap, which include a shared percentage of the 0.3% trading fees accumulated for the relevant trading pair, Agave creates an additional opportunity for 1Hive to incentivize liquidity providers without needing to supply a HNY subsidy. With Agave, users will be able to earn both a portion of the accumulated 0.3% trading fees and extra staking rewards from the Agave platform, all while limiting the tremendous selling pressure and negative impact on the value of HNY seen with the traditional (and abandoned) liquidity mining incentive.
Celeste is a subjective oracle developed by 1Hive that enables smart contracts to ask questions and receive answers. With this capability, any user can add a token to the Agave market by staking AGVE. However, if a token does not meet the standards of Aragon Agreement 20, users who oppose this added token can challenge the added token with Celeste. It can therefore be assumed that Agave will be more frictionless than Aave, and the platform itself will have efficient, fair, and most importantly, decentralized control over internal operations.
Users can lend tokens to the protocol. Interest is determined dynamically by the utilization rate of the token by the protocol. In other words, as the supply of the token decreases, the interest rate for the token increases.
Once a user lends funds to the protocol, they will earn a line of credit they can use to borrow against.
Lenders can extend their line of credit to other addresses. This effectively gives the possibility for users who have nothing deposited in Agave to lend from the protocol without capital.
Flash loans provided by Agave will likely be more powerful than similar flash loans offered on Ethereum Mainnet. Users will be able to borrow multiple tokens in the same transaction, whereas on Mainnet each transaction requires an individual transaction hash and fee (which, as many know, are typically exorbitant). Flash loans in Agave will not need to be repaid entirely in the same transaction; a portion of the loan can be added as debt if the user has enough collateral in the protocol.
Agave (AGVE) Token Overview
Agave (AGVE) token is the governance token for the Agave protocol. A brief overview of the applications of the AGVE token are as follows:
- Adding/removing tokens from the market
- Enabling/disabling the ability to use specific tokens as collateral
- Setting the collateral rates
- Maximum LTV (loan-to-value rate)
- Liquidation threshold
- Liquidation penalty
- Used as collateral
- Stable borrowing
The AGVE token can also be staked to the Agave platform in order to earn liquidity provider rewards. One of the use cases for the liquidity pool will be to provide insurance to the protocol, such as in the case of a shortfall event.
Recently, the AGVE token was created and a successful distribution to core DAO members occurred. Qualifications for being rewarded in the distribution were predominantly related to early adoption and/or participation in the 1Hive DAO and Honey/Honeyswap. The overall token distribution is as follows:
Total supply — 100,000 AGVE
- Agave treasury — 72% (72,000 AGVE)
- Circulating supply — 28% (28,000 AGVE)
- 10% — staked to WETH-AGVE pair liquidity pool on Honeyswap
- 8.4% — distributed in a fair launch to qualified 1Hive DAO community members and other members who contributed to the product launch
- 5% — staked to Agave platform by 1Hive DAO in order to provide network security and liquidity
- 4.6% — distributed to Agave seed members — (1-year/365 day vesting period)
Scope of the Minimum Viable Product (MVP)
Front-end for interacting with the protocol
The front-end of Aave on Ethereum Mainnet is not open source, and therefore the front-end for Agave is currently being developed from scratch by the 1Hive DAO. This MVP user interface will allow users to experiment with the functionality of the platform without being required to interact with the protocol’s smart contracts directly. Here you can see the first deployment of the website!
Back-end development of the protocol
An index of historical interest rates will be required in order to calculate current interest rates and token prices on the front-end. Aave’s data index is built by The Graph. Agave will implement a similar approach.
There will be no modification to any of the core Aave contracts other than the market configuration. Chainlink Aggregator contracts (oracles) will also be used.
Outside the scope
Includes any smart contract changes to the core protocol, any modification of the economics of the system, and any integrations with Celeste.
Expect much more coming from 1Hive and our community as they aim to build and develop more DeFi projects! Make sure you follow all of their social media channels to learn how you can be a part of upcoming projects!
Special Thanks to the Agave community members: Honey B, Green Hornet & Pressure