Aave aave
Collective Shift Analysis
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Aave Summary
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Aave uses ‘aTokens’, which are created when crypto-assets are supplied to an Aave market and burned when withdrawn.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.
Utilisation rate
![Aave 1 utilisation rate](https://collectiveshift.io/wp-content/uploads/2022/04/image-58.png)
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. – Alex Bertomeu-Gilles (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 Token Utility
Aave’s native ERC-20 token is AAVE, with a maximum supply of 16 million.
AAVE has three 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 protocol’s safety module to act as the collateral of last resort for the protocol in exchange for token incentives.