Aave (formerly known as ETHLend) is a liquidity market protocol that allows users to lend and borrow crypto assets without the need for third-party intermediaries.
Depositors “store” their funds in a smart contract and earn passive income. Meanwhile, borrowers who deposit other assets as collateral can take advantage of Aave’s features like “flash loans” and “variable rates.”
How does AAVE work?
Aave is a system of smart contracts on the Ethereum blockchain.
Users deposit digital assets into Aave’s liquidity pools. They receive aTokens, which are interest-bearing tokens that are pegged 1:1 to the real-time value of the underlying asset. For example, depositing 1 ETH gets you 1 aETH.
Over time, depositors will be entitled to the value of 1 aETH + interest income in aETH from the liquidity pool.
Depositors can also take advantage of the typical collateralized borrowing features, or they can benefit from Aave’s flash loans and variable interest rates.
Flash loans – which have lower interest rates – are uncollateralized loans made when users borrow AND return assets within the time it takes for the Ethereum blockchain to finalize a new block (around 13 seconds).
Users can lend and borrow across 30+ digital assets including stablecoins and altcoins.
Team background
AAVE founder Stani Kulechov was a law student at the University of Helsinki when he started exploring lending applications on the Ethereum blockchain.
He released ETHLend in 2017, which was then rebranded to the Aave Protocol in 2020.
Kulechov continues to run Aave along with a small team in charge of development, research, and support in London and Switzerland.
Investors
Three Arrows Capital, Blockchain Capital, Defiance Capital, ParaFi Capital, DTC Capital
What is the AAVE token?
AAVE, which is different from Aave’s tokens, is an ERC-20 token that’s primarily used for protocol governance. That is, AAVE holders can vote on the project’s modifications and future development.
AAVE holders can also stake their tokens in a smart contract-based deposit pool called Safety Module, which helps to ensure the protocol from various risks including insolvency, loss of funds to liquidity providers, and smart contract risk.
In return, stakers receive a portion of the daily Safety Incentive rewards allotted to stakers every day.
Token Metrics:
- Holder Addresses: 124,520
- Circulating supply: 14M AAVE
- Max supply: 16M AAVE
- About 23% of the initial supply of AAVE went to the project and founders, and 77% went to investors.