Aave (fun fact: the name is taken from the Finnish word for “ghost”) is a decentralized, open-source, and non-custodial liquidity protocol. Depositors earn interest by providing liquidity to lending pools, while borrowers can obtain loans by tapping into these pools with variable and stable interest rate options.
The Aave Protocol is unique in that it tokenizes deposits as aTokens, which accrue interest in real time. It also features access to Flash Loans and Credit Delegation as uncollateralized loan options. The AAVE token, soon available for purchase directly on Nash, is the governance token of the Aave Protocol. AAVE token holders can vote on protocol updates and stake their AAVE in the protocol Safety Module to earn Safety Incentives.
Nash is integrating Aave’s technology to build easy-to-use crypto earnings products.
- The Aave Protocol enables users to earn interest on deposits and borrow digital assets. Interest rates for depositors are determined by market supply and borrowing demand. Deposits in Aave are tokenized as Aave interest-bearing “aTokens”, which increase in balance every second directly in your wallet.
- Most loans through Aave are overcollateralized, meaning a borrower must put up more in collateral in one asset than the value of the asset they are borrowing. As long as borrowers have enough collateral to maintain their loan position, they can pay back their loan at any time.
- The Aave Protocol features access to Flash Loans, a type of uncollateralized loan building block designed for developers.
- Aave also allows depositors to delegate a credit line to a borrower who can borrow against it without needing to put up any collateral of their own.
- Aave is one of the fastest growing DeFi protocols and is receiving attention from consumers and institutions alike.
Aave launched on the Ethereum mainnet in January 2020 and recently surpassed $5B in deposits and loans (market size), a growth record for the DeFi space. As the protocol does not rely on any financial intermediaries or middlemen, it negates traditional financial inefficiencies and means that depositors have historically earned higher rates than they would in a traditional savings account. This makes Aave an attractive way to earn a passive income. Aave users can also swap their deposited assets at any time to get the best yields on the market, even if they are using them as collateral.
The protocol features access to over 20 digital assets, which can be deposited and borrowed. More assets can be added through a governance vote. The Aave Protocol is decentralized and community governed, so AAVE token holders can propose and vote on smart contract changes and protocol updates.
Aave also brought innovative DeFi building blocks such as Flash Loans and Credit Delegation to space.
Check out this guide on how to use the Aave Protocol.
Aave’s innovative features
Yield and Collateral Swap
Users can trade their deposited assets across all currencies supported by the Aave Protocol, even when they are being used as collateral. This can be helpful to avoid liquidations if you are borrowing. This feature also enables you to swap your assets for the best yields available in the market, making it easier than ever to bolster your passive income.
Stable- and Variable-Rate Borrowing
Borrowers can choose between a stable and variable rate when borrowing, and they are also able to switch between the two at any time to ensure they always get the best possible rate.
Flash Loans enable developers to borrow without putting up any collateral, as long as the borrowed liquidity is returned to the pool within one block transaction. If this does not happen, the transaction gets reversed to return the liquidity and ensure the safety of the funds in the protocol.
Credit Delegation enables depositors to delegate a credit line to a borrower who can borrow against that credit line without needing to put up any collateral of their own. The terms and conditions between the delegator and delegatee are all laid out in a legal agreement. Credit Delegation is designed so that a borrower could be an institution, business, NGO or other, opening up DeFi as a source of liquidity to the rest of the financial world.
The AAVE token is the governance token of the protocol, and AAVE holders can both propose and vote on protocol changes. AAVE holders can also delegate both their proposition and voting power separately to other community actors if they wish.
AAVE holders can also stake their AAVE in the protocol Safety Module and earn Safety Incentives. Safety Incentives are currently set to 550 AAVE/day to be distributed among all stakers. In the case of a shortfall event, up to 30% of the stake can be slashed to cover the deficit and protect the protocol. stkAAVE (staked-AAVE) holders are also able to vote and participate in the governance process.
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