Aave is a decentralised lending platform that facilitates the borrowing and lending of crypto assets across multiple blockchains.
Think of Aave as a crypto-native bank run by the community of AAVE token holders where users can participate as depositors or borrowers.
- Lenders: Deposit accepted assets to earn a variable yield on their deposit.
- Borrowers: Instantly borrow assets through an over collateralised loan at a variable or stable interest rate. Users can essentially borrow against their crypto for a loan.
Aave uses ‘aTokens’, which are created when crypto-assets are supplied to an Aave market and burned when withdrawn. For example, if you deposit ‘WETH’ you’ll receive ‘AWETH’ tokens.
Each currency reserve is characterised by its utilisation rate, U. It represents the share of borrowed liquidity.
As U gets closer to 100%, the capital becomes scarcer until no liquidity is left at U=100%. This situation can be problematic if depositors wish to withdraw their liquidity, but no funds are available. – Risk Manager @Aave
Aave is also known for pioneering ‘flash loans’, which are trustless, under-collateralised loans where borrowing and repayment must occur in the same transaction.
Aave has a separate product targeted at institutional access to DeFi. Aave Arc provides private liquidity pools to investors, enabling direct access to decentralised markets.
It has the same features as Aave Protocol but fits within the KYC and AML and is whitelisted. Crypto- assets offered are also reduced.
AAVE Token Utility
Aave’s native ERC-20 token is AAVE, with a maximum supply of 16 million.
AAVE has 3 main use cases: governance, market participation and safety.
- Governance: AAVE token holders propose and vote on improvement proposals for the protocol.
- Participation: The Aave platform accepts AAVE as a deposit and acceptable collateral, allowing token holders to utilise the system.
- Safety and security: Holders can stake AAVE within the protocols safety module to act as the collateral of last resort for the protocol in exchange for token incentives.
Collective Shift Analysis
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