Occupying the 26th spot on the Market Cap with a capitalization of $6 billion, Aave is brilliantly part of the decentralized finance (DeFi) movement. Learn more about this protocol and follow our tutorial to lend or borrow cryptocurrencies via Aave!
What is Aave and what is its token AAVE used for?
Aave is both a company and a protocol, created by Stani Kulechov, an entrepreneur of Finnish origin. For the record, “aave” means “ghost” in Finnish. If you know Aavegotchi, this game which associates DeFi and NFT, you understand better why they are small virtual ghosts like Tamagotchi which evolve there! Another thing to know about Aave’s name is that when it debuted in 2017, Aave was called ETHLend. ETHLend worked as a P2P ETH lending tool and had LEND as a token. In 2018, ETHLend was renamed to Aave and its lending system switched from P2P to a liquidity pool managed by smart contracts. Aave’s ecosystem is quite extensive, with wallets like MyEtherWallet (MEW) and Gnosis, as well as DEX like Paraswap and 1inch.
The LEND token became the AAVE, with a ratio of 100 LEND for 1 AAVE. At the time of writing, the AAVE token is worth about €4700, an increase of 400% since January 1, 2021. AAVE has several aspects within the Aave protocol: it is both a utility token and is used for project governance as well as for staking. AAVE tokens experience a steady burn, as tokens related to transaction fees are systematically burned. Since the Aave protocol is based on the Ethereum blockchain, its AAVE tokens are an ERC-20 cryptocurrency. Many crypto currency exchange platforms offer AAVE trading, be it Binance, Coinbase Pro or even Kraken.
What is the purpose of the Aave protocol?
Aave defines itself as “an open-source, non-custodial liquidity protocol for generating interest and borrowing assets.” In this case, the assets at the heart of Aave are cryptocurrencies, with 25 cryptos listed. These range from Wrapped ETH (WETH) to WBTC Coin (WBTC) to xSHUSHI (XSHUSHI) and Maker (MKR) to name a few crypto-assets. On the stablecoin side, there is also plenty to do, including USD Coin (USDC), USDT Coin (USDT) and DAI. Currently, Aave’s liquidity pools total over $10 billion. The particularity of the Aave protocol comes from the fact that it allows you to borrow cryptos with either a stable or variable interest rate.
The cash circulating on Aave is secured via a non-custodial Smart Contract, which means that each person using Aave is responsible for their wallet. So be careful! If you lose the private key to your precious crypto wallet, you’ll have only your eyes to cry!
Why is Aave breaking free from Ethereum thanks to Polygon?
Ethereum’s transaction fees are staggering, so much so that they pose a serious problem for DeFi. Aave seems to have found the solution to these high fees that are encountered in decentralized finance. This solution is Polygon. As a reminder, the Aave protocol was built on the Ethereum blockchain. Due to its success, the latter is subject to particularly high transaction costs, which, in the eyes of Marc Zeller of Aave, are a brake on the expansion of DeFi. To combat this and provide access to decentralized finance for all, Aave decided to venture into Polygon (formerly Matic Network), a sidechain of Ethereum. The result? Particularly low transaction costs and a significant speed. Switching from Ethereum to Polygon via the Polygon Bridge is very easy if you use MetaMask.
Aave tutorial: how to use Aave?
To start using Aave, connect your wallet to the protocol. Since it is decentralized finance (DeFi), no KYC type identity verification is required! Don’t have any cryptos? No worries, Aave has it all figured out with a system for buying crypto assets via fiat currency.
What are the interest rates on Aave?
On the interest rate side, whether to borrow cryptos or to lend them, they are calculated according to supply and demand. If you choose a “stable” rate, it will be an average of the rates of the past 30 days. An estimate of the different interest rates is available on the official Aave website. Following the adoption of the protocol improvement proposal called AIP-16, Aave users will benefit from the distribution of 2,200 stkAAVE per day (AAVE tokens from staking), which will be paid out until July
How to lend cryptocurrencies via Aave?
The use of Aave relies on aTokens, which are indexed 1:1 to the cryptocurrency you deposit in the liquidity pools. Simply select the crypto you wish to lend to initiate the process. The interest earned by lending your crypto assets via the cash reserve is generated in aTokens, which you can transfer to a wallet or resell at any time. It is possible to earn interest in stablecoins, for example by lending DAI to obtain aDAI. Note that Aave V2 offers the possibility to exchange tokens for others via the Swap & Repay with collateral feature.
How to borrow cryptocurrencies via Aave?
Borrowing cryptos via Aave is simple: just select the asset you’re interested in and fill in the amount you want. A system of flash loans, which are unsecured loans whose operation is a little unusual, since they were designed primarily for developers who know how to code a smart contract. These flash loans must be set up and redeemed within the same transaction block.
Staking AAVE or BPT
It is possible to participate in the functioning of the protocol by staking Aave and delegating AAVE tokens from your dashboard. However, it should be noted that staking only works on the Ethereum network, which means that transaction fees may be particularly high and the operation not very profitable for staking only a few tokens. Today the interest rate on the delegation of AAVE tokens is about 7% per year.
On the other hand, it is possible to feed a liquidity pool on Balancer on the AAVE/ETH pair and to deposit the LP (liquidity Provider tokens) directly on the Aave protocol and to benefit from annual interests of about 17% in order to receive “Security Incentives”.
Where to buy AAVE?
Want to buy AAVE? It is possible to buy AAVE directly on a decentralized exchange like Uniswap or directly on an exchange like Binance which offers the largest number of pairs to buy and sell AAVE.
In summary:
- Aave is a major player in DeFi.
- The Aave protocol allows you to borrow and lend different cryptocurrencies.
- The integration of Aave into Polygon drastically reduces transaction costs.
Our articles are written for educational and informational purposes. We do not provide investment advice. Any investment carries a risk of capital loss. Never invest more than you are willing to lose.
Frequently Asked Questions :
- What is Aave?Aave is a non-custodial, decentralized liquidity market protocol in which users can participate as lenders or borrowers. Depositors provide liquidity to the market to earn passive income, while borrowers may borrow uncollateralized (perpetually) or under-collateralized (single block liquidity).
- What is Aave used for?Simply lend and borrow liquidity (crypto-currencies) on decentralized markets. On the one hand lenders receive passive income by providing their cryptocurrencies and borrowers can borrow at different rates.
- Is it safe?Funds stored on the Aave protocol are deposited a non-custodian Smart Contract on the Ethereum blockchain, which means that no one can access them. Aave is also regularly audited (its source code) and passes each test without any hitch. The companies that have already audited Aave are: Trail of Bits, Open Zeppelin, Consensys Diligence, Certik, Peckshield.
- What is the difference between Aave and Compound?Compound is an algorithmic and autonomous interest rate protocol. Basically there is no difference between these two protocols. They both serve to provide liquidity in decentralized markets.
- How to staking AAVE?To make staking on Aave you need to have your native token on a wallet and then connect to the user interface to delegate your tokens. The protocol does not require any special skills to delegate its AAVEs.
