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In Conversation: Stani Kulechov discusses Aave’s growth

We recently profiled the popular lending protocol Aave as part of our new Monolith Spotlights series. Aave is one of the most used DeFi protocols, widely regarded as a “blue chip” of the Ethereum ecosystem. To learn more about Aave’s place in the world of decentralised finance, we caught up with the protocol’s founder, Stani Kulechov.

Hi Stani, how do you feel reflecting on the rapid growth the DeFi space has seen over the last year?

2020 was a wild ride for the DeFi space, growing from $600 million to $15 billion now. We launched the Aave Protocol at the beginning of the year, and it’s been amazing to see the growth. Now we’ve launched V2, and with V1 and V2 combined it’s reached over $3 billion in market size. I think the open-source nature of DeFi is amazing, because it allows the space to innovate at the speed of light compared to the closed-off, traditional financial system. This year we’ve seen so many new “money legos” popping up that can be plugged into each other and assembled in new ways to create new financial instruments.

Why do you think Aave captured so much interest among the community this year?

Aave started 2020 as an underdog of DeFi, and without the dedicated community the protocol could not have grown to where it is today. Aave brought new innovations like Flash Loans and Credit Delegation, which are great building blocks for developers. The community built projects that complement the protocol, which helped the ecosystem grow. We wanted to give back to the talented people building on Aave, so we started the Aave Ecosystem grants program to give them a boost. I think these new tools that come with “DeFi composability” have generated a lot of community buzz this year.

Aave has undergone a number of significant upgrades with the launch of V2. Can you explain how collateral swapping will help DeFi users, and what other additions are you most excited about?

Collateral swapping is the feature I’m most excited about, because it’s not just about being able to swap collateral, but also about swapping yield. You can swap any assets that are deposited in the Aave Protocol, so you can swap for the best yields on the market. For example, if you deposited DAI but you see that the interest rate for USDC is really high, you can simply swap your assets so that you’re now earning interest on USDC. This tool is also helpful for avoiding liquidations. For example, if you’re using ETH as collateral for a loan and the price of ETH falls, you can simply swap that ETH for a stablecoin so you don’t have to worry about getting liquidated.

Another feature I’m really excited about are the batch flash loans, which let you do a flash loan with multiple assets inside the same transaction. This means a flash-borrower has access to essentially all the liquidity in the protocol.

Flash loans have been a topic of contention since Aave pioneered the innovation at the start of the year. How can DeFi prevent the risk of flash loans attacks in the future?

The flash loan attacks all still could have happened if flash loans didn’t exist. Someone with a lot of capital could have exploited the same vulnerabilities in the affected protocols. Flash loans really just open up whale-like liquidity to anyone, meaning that there are a lot more actors who now have immense borrowing power. These events illustrated the importance of security and auditing a protocol. DeFi composability means that if one protocol is not properly secure, it can affect the rest of the ecosystem.

Monolith users may be familiar with Aave as they’re able to buy assets such as aDAI and aETH in the app. What’s the benefit to holding aTokens over their regular underlying assets?

aTokens earn interest in real-time, directly in your wallet, so your balance is actually increasing every second. Holding aTokens over your regular underlying assets means that your assets are doing something for you: earning a passive income.

How do you think mobile DeFi solutions like Monolith will help Aave over the coming years?

Solutions like Monolith will help bring Aave and DeFi to mainstream adoption. Being able to earn on your crypto in the background and also spend it on a card makes the whole thing more seamless and practical for crypto holders.

How do you see lending and borrowing in DeFi evolving in relation to the “traditional” world as DeFi grows?

I don’t think DeFi will “eat OldFi” — there are so many synergies to explore. For example, I think DeFi could become a source of liquidity for traditional institutions and businesses with tools like Credit Delegation. More institutions have been drawn to the DeFi space this year and there’s a lot of potential here.

Is DeFi ready for 1 billion users? What do you think needs to be achieved before hitting mass adoption?

Scalability is already improving with Layer 2, and DeFi is getting ready for mainstream adoption. One big barrier is education and helping people understand what DeFi has to offer, and this is where solutions like Monolith come in, making it easy for users to interact with DeFi protocols like Aave without them really needing to understand everything that’s going on behind the scenes. They can be earning on their crypto and spending it all from one user-friendly place.

Learn more about Aave here.
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