Aave, also known as AAVE which means “ghost” in Finnish, is a
decentralized system in which users can lend their crypto assets, borrow them,
or earn interest over them. In essence, AAVE is a system of lending
pools.
Aave users must provide collateral for whatever they borrow, and they
are only limited to borrowing the exact same amount they posted as collateral.
By doing so, they receive something called an aToken, a token which is both
encoded so that lenders receive their due interest and also pegged to the value
of another asset.
Aave Explained
In this non-custodial liquidity market protocol, users can participate
as both the depositors or borrowers and while the depositors can earn a passive
income, the borrowers can borrow in either an undercolleaterilsed or
overcolletaralised manner, all of which without an intermediary.
Aave runs on the Ethereum blockchain and operates under a system
composed of smart contracts and lending pools for whichever cryptocurrency one
wants to either deposit or borrow.
AAVE features two types of tokens:
1.
aTokens: which are issued for lenders and grants them
the ability to collect interest on their deposits
2.
AAVE tokens: which are Aave’s native tokens and allows
users to have discounted fees.
AAVE also features “flash loans”, a type of load which is to be
instantly issued and settled with no upfront collateral. Since Ethereum’s block
interval is roughly 13 seconds and Aave is built on it, flash loans take place
during that 13 second period.
To do so, a borrower can request funding from AAVE but has the
responsibility of paying them back with a 0.09% fee within the very same block
or the entire transaction is aborted, leaving no room for risk on either side
of the transaction.
The History Behind AAVE
Aave was founded in 2017 and is the vision of Stani Kulechov. The
for-profit Swiss-based company was formerly known as ETHLend and its 2017
initial coin offering (ICO) raised an estimated $16 million US Dollars.
