What is Aave (AAVE)?

In traditional finance, lending and borrowing are typically facilitated by  centralised financial institutions such as banks or other intermediaries. This creates a number of issues – inefficiencies, censorship, and more.

Aave, on the other hand, connects lenders and borrowers on its platform, without the need for intermediaries. It does this through the use of smart contracts that automate and execute lending and borrowing agreements. 

Aave supports lending markets for 20 different cryptocurrencies on multiple blockchains, including Ethereum, Polygon, and Fantom.

How does Aave work? 

Users can participate on the platform as suppliers or borrowers. Suppliers provide liquidity by supplying cryptocurrency and earning interest on the amount on loan, while borrowers borrow crypto and pay interest on the amount they borrow. The interest rates are governed by an algorithm which adjusts rates according to supply and demand in the market. 

Aave works by gathering deposits from users into something called a “liquidity pool.” This pool of crypto is then used by the system to lend to other people. Imagine it like a giant savings account that Aave can use to quickly and easily give out loans whenever they’re needed. 

The protocol’s loan system aims to make borrowing safer and more flexible. It uses a mix of collateral, automated contracts, and a special algorithm to manage risk. With collateral, users need to deposit more crypto than they borrow, protecting lenders from losses. Smart contracts handle lending details like fund availability and interest rates. Aave’s algorithm ensures safety to suppliers by selling the borrower’s collateral if needed. Users can repay loans whenever they want, reducing the chance of losing collateral. Aave also has flash loans, quick repayable loans emphasising on-time payment. 

Users interact with the Aave protocol through the Aave web app and connect a decentralised digital wallet. Once connected, they can deposit the preferred cryptocurrency and amount. 

What is Aave’s native cryptocurrency? 

AAVE is the native cryptocurrency of the Aave network and is used for governance and staking. Holders can participate in the platform’s governance and vote on various matters, such as new pools and assets, altering pool parameters, platform fees, and platform upgrades.

The total supply of AAVE is capped at 16 million tokens. You can track the current circulating supply here. 

Who was the founder of Aave? 

Stani Kulechov founded Aave with the intention of creating a decentralised lending and borrowing platform. Aave was officially founded in 2017 under the name ETHLend. The platform initially focused on peer-to-peer lending using smart contracts on the Ethereum blockchain. As the project evolved, it rebranded to Aave, a term that means “ghost” in Finnish, symbolising transparency and decentralisation.

What is Aave’s organisation structure? 

Aave operates as a decentralised autonomous organisation (DAO), meaning that decisions regarding protocol upgrades and changes are made by Aave holders through voting. This aims to put in place a democratic and community-driven approach to the protocol’s development and governance.

Useful tools 

Aave blog
Aave white paper 
Aave on X 

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