What is Aave: The DeFi Powerhouse Changing the Crypto Landscape

Aave’s history dates back to November 2017, when Stani Kulechov launched ETHLend with his Helsinki-based team. Since then, ETHLend has evolved into Aave, incrementally upgraded with more and more features.

• Aave is the most well-known Finnish crypto project.
• Aave is the world’s largest decentralized crypto lending platform.
• Users can apply for loans using cryptocurrencies as collateral.
• Aave operates fully automated through smart contracts.
• Aave’s own cryptocurrency is the AAVE token, which can be used to vote or earn interest.

A Decentralized Money Market Protocol

How does Aave work, then? Users deposit funds they intend to lend, thus providing liquidity to the market. The funds are gathered into a pool. The users who want to borrow draw from the pools. Thus, those users can now buy, sell, or transfer the tokens they drew.

Aave issues two types of tokens for these ecosystem operations. The first type is aTokens, issued to lenders so they can collect interest on deposits. The other type is AAVE tokens, the native tokens of Aave.

The AAVE cryptocurrency offers holders several advantages. AAVE token holders have the right to vote on upcoming protocol changes. Holders also act as “governors” for decentralized governance. Furthermore, AAVE borrowers don’t have to pay a fee if they take out token-denominated loans.

AAVE users, if they pay a fee in AAVE, can examine loans before the public has access to them. Borrowers who post AAVE as collateral can also borrow slightly more. Hence, the Aave ecosystem uses sophisticated game theory-inspired structures to incentivize different parties.