Have you ever dreamed about earning with your assets instead of passive holding? The crypto project Aave is a decentralized protocol that offers an active alternative to passive token holding. Aave is definitely a name to know for those who want to learn how to invest in decentralized finance and how to earn passive income with crypto.
The name Aave is rooted in the Finnish word “ghost.” The name ghost illustrates the protocol’s goal to be transparent and open infrastructure in the DeFi space. Aave is an Ethereum-based DeFi platform that started its journey as ETHLend (LEND). Aave’s core value proposition is to enable users to lend, borrow, and profit from stable or variable interest rates in a decentralized space.
The AAVE crypto token launched in October 2020, and investors had an option to migrate their older LEND tokens to AAVE 1:100. AAVE price per token has increased by 249,07% since the launch. Aave’s current market cap is $4,27 billion, and total value locked (TVL) is $18.028 billion. AAVE token has, on average, been more correlated with Ethereum (0,46) than Bitcoin (0,18).
A Brief History of Aave
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. This is Aave’s timeline:
- 2017: ETHLend raised $16 million in the ICO funding round.
- 2018: ETHLend rebranded as Aave.
- 2019 October: Aave V1 public testnet launched.
- 2020 January: Aave V1 launched. ETHLend ceases operations.
- 2020 October: AAVE crypto token launched. LEND / AAVE migration 1:100.
- 2020 December: AAVE V2 launched with new features. Aave V1 continues to work in parallel.
- 2021 July: Aave lending platform has changed the name of their planned institutional DeFi product, Aave Pro, to Aave Arc. It was decided to portray its function as a doorway for institutions to enter the decentralized financial industry.
A Decentralized Money Market Protocol
In short, this is how Aave works. 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.
Aave has positioned itself exceptionally well compared to the rest of the competitive DeFi scene. It’s currently in the top three most significant protocols in terms of total value locked (TVL). The current TVL for Aave is close to $5 billion.
Aave: Crypto Project in Numbers
Aave protocol currently has $461 million in borrowed funds, in other words, outstanding debt. The amount of borrowed funds on the Aave platform crossed one million dollars in February 2020. By early 2021 the borrowed funds reached $500 million.
Aave’s cumulative total earnings have been multiplying from 2020 to 2021. The volume rose from early 2020 five figures to almost 300,000 in early 2021.
Aave’s cumulative interest paid has been growing in close correlation with other metrics. Cumulative interest paid is currently close to $150,000.
Despite the significant protocol growth, the Aave ownership structure is still relatively centralized. Whales, or addresses that own more than one percent of circulating supply, own 71,4% of AAVE tokens. Then, investors, or tranche that owns between 0,1% and 1% of circulating supply, represent 16,1% of the total token supply. Finally, traders hold 12,6% of AAVE tokens. In summary, larger holders, i.e., whales and investors, own 87,5% of all AAVE tokens in circulation.
Decentralized Governance & Flash Loans
AAVE Crypto: Governance
AAVE is the native token of the Aave protocol. Additionally, AAVE acts as a governance token that allows the community to decide collectively what the direction of the protocol is going to be.
The Aave protocol aligns with the decentralized governance model. This model allows the protocol users to vote on future changes and the upcoming direction of the protocol.
“The goal of the Aave Tokenomics, through its incentives and policies, is to create a Shelling Point where the protocol’s growth, sustainability, and safety take priority over individual stakeholder objectives.”
Aave protocol governance features a decision-making process for the different risk parameter changes, such as improvements, and incentives that constitute the policies. Future decisions governing the protocol will be enacted through protocol governance. The purpose of the AAVE token is, above all, to grant token holders the capability to vote on proposals. The token allows its holders to act as protocol governors.
In addition, AAVE holders can stake their tokens and earn passive income. Staking essentially means participating in transaction validation on a proof-of-stake (PoS) blockchain. Any user who has a minimum required balance of, in this case, AAVE can join a staking pool. Then the users validate transactions and earn staking rewards.
Aave Crypto: Flash Loans
One of the Aave protocol’s core features is flash loans. This feature allows certain smart contracts to be instantly issued and settled. Flash loans don’t require any upfront collateral, and the system implements them immediately.
Flash loans finalize only when the network accepts a new bundle of transactions, or block. This feature is inherent to all blockchain applications. On the Bitcoin network, adding a new block takes approximately 10 minutes. Using Bitcoin as a benchmark, the Aave network and flash loans are fast, settling within 13 seconds by Ethereum’s structure limits.
Flash loans work by a borrower requesting funds from Aave. The borrower must pay back the funds by flash loan contracts, combined with a 0,09 percent fee, within the same block. Should the borrower fail to meet his obligations, the entire transaction is canceled. This structure allows a zero-risk environment for borrowers and Aave itself.
What Makes Aave Important?
The Aave protocol is essentially about unlocking liquidity for the decentralized finance space. Aave allows anyone to earn interest or borrow against their digital assets, transforming assets from passive into an active state. The project enables investors to take a long position on their wealth, regardless of wealth composition, and retain working capital at the same time.
AAVE tokens are now available for buying, selling, and storing on Coinmotion.com.