An Decentralized Money Market Protocol.
AAVE, one of several promising DeFi cryptocurrencies, is a Decentralised lending system that allows users to lend, borrow, and earn interest on crypto assets without the use of a middleman. Aave, which runs on the Ethereum blockchain, is instead a smart contract system that allows these assets to be controlled by a distributed network of computers running its software.
This implies that Aave consumers do not have to rely on a certain institution or individual to manage their assets. They merely need to believe that the code will run as intended. At its heart, the Aave programme allows users to create lending pools in which they may lend or borrow 17 various cryptocurrencies including as ETH, BAT, and MANA.
Borrowers in Aave, like those in other decentralised lending systems on Ethereum, must submit collateral before they may borrow. Furthermore, they are only permitted to borrow up to the amount of the collateral they deposit. Borrowers are given monies in the form of an aToken, which is linked to the value of another asset. This token is then encoded, allowing lenders to earn interest on deposits.
A borrower may, for example, post collateral in DAI and borrow in ETH. This allows a borrower to obtain exposure to several cryptocurrencies without really holding them. Aave may also incorporate new services like flash loans and other types of debt and credit issuance that take advantage of blockchains’ unique design qualities. The protocol itself makes use of a DAO, or Decentralised Autonomous Organisation. That is, it is run and governed by the individuals who own and vote with AAVE tokens.
A Story Of AAVE: ETHLend
ETHLend, Aave’s history dates back to 2017. ETHLend was launched in November 2017 as an Initial Coin Offering (ICO) by Stani Kulechov and a team of engineers. The concept was to allow users to lend and borrow bitcoins from one another by allowing users to publish loan requests and offers.
While ETHLend was a new concept, the network and its token LEND lost traction once the 2018 bear market began. The platform’s main drawbacks were a shortage of liquidity and the difficulty in connecting loan requests to offerings.
So, throughout the weak market of 2018 and 2019, the ETHLend team revamped its product, introducing Aave at the start of 2020.
Kulechov stated on a podcast that the bear market was one of the nicest things that could have occurred to ETHLend. This is a reference to the opportunity he and his team were given to reinvent the notion of decentralised cryptocurrency lending, resulting in the creation of Aave.
How Lending Works On Aave
Traditionally, you’d have to go to a bank or other financial institution with a lot of liquid cash to secure a loan.However, you must still supply collateral. Other cryptocurrency tokens are acceptable in a DeFi system that strives to be fiat-free. So, for a $500 crypto loan on Aave, you’d need to put up more in another coin, for example if you want to borrow $500 worth of ETH then you need to collateralize it with $500 USDC or USDT. Once tokenized, investors may buy (or keep as collateral) these tokens that act similarly to bonds and receive a return on their investments.
What Is The Point Of Borrowing Cryptocurrency?
Although it is usually more advantageous to purchase or sell cryptocurrency, borrowing it might be useful in some situations. Arbitrage is one of the most evident. If you find a token trading at various prices on several exchanges, you may profit by purchasing it one place and selling it elsewhere. However, because the differences are usually tiny after accounting for transaction fees and spreads, you’d need a lot of the cryptocurrency to make a meaningful profit. Aave pioneered the usage of flash loans, in which customers borrow bitcoin without providing security, use it to buy an item, sell it, and then refund the original amount in the same transaction while taking a cut.
A Flash Loan?
A flash loan is a one-of-a-kind function of the Aave platform. These are uncollateralized products made feasible by the way Ethereum operates (Aave is built on the Ethereum blockchain network).
Flash loans are automated, fast-executed loans that must be repaid in a single Ethereum transaction. If the principle and interest are not repaid within that time frame, the loan is essentially reversed, and the transaction is deleted from the blockchain as if it never happened.
Founder’s of AAVE
Stani Kulechov established Aave and its precursor ETHLend. He was disappointed by the lack of loan apps on Ethereum at the time, and his idea was designed before decentralised finance existed.
Kulechov is a serial entrepreneur who studied law and began programming as a teenager. He was an early user of blockchain technology. The CEO stated that he wants to rename ETHLend as Aave so that the firm could offer more services than Ether lending.
Aave’s major target market, according to Kulechov, is those who are already involved in the cryptocurrency ecosystem.
AAVE COIN TOKENOMICS
Because tokens are burnt everytime the system collects fees, circulation is related to the total amount locked on Aave. In November 2017, an initial coin offering (ICO) was performed to raise $16.2 million by selling one billion AAVE tokens for $0.0162 each. At the time, the founders and project received 23 percent of the AAVE tokens. The token is currently ranked 42th in terms of market capitalization. At the time of writing 27th of May 2022, the AAVE token was trading at $94.21 (7308.52 INR), With a market cap of $ 1.3 Billion and 13 Billion AAVE coins in circulation.
AAVE coins are built on the ERC-20 standard and are intended to be deflationary. In the case of a DeFi protocol shortage, staked tokens would be utilised as collateral as a last option.
Aave and Compound, for example, are decentralised money marketplaces that pave the path for a more open and accessible financial system. Aave is an intriguing DeFi initiative that enables cryptocurrency users to have transparent access to cash and services.
The AAVE token is another exciting development. Its holders have the ability to influence changes to the Aave protocol. It also shields the protocol against black swan situations.
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