What is AAVE?

AAVE is a decentralized finance (DeFi) cryptocurrency solution that has made borrowing and lending digital coins easy. This DeFi protocol does not only support cryptocurrency lending but also allows people to lend real-world real estate.

Although lending and borrowing of assets is nothing new to the financial world, AAVE made it possible on a decentralized platform. As a result of that decentralization, there’s no need for a third party when lending assets with this platform.

AAVE started as a financial solution hosted on the Ethereum network. Therefore, it uses the same smart contract functionality popular with the blockchain. It is also on other blockchains, including Harmony, Fantom, and Avalanche.

The native token for this decentralized application is known as AAVE, an ERC-20 token, making it compatible with the Ethereum blockchain.

Who Created AAVE?

The cryptocurrency solution AAVE was founded by a company of the same name. Stani Kulechiv founded the company, a profit-oriented establishment, in 2017.

Stani showed interest in the Ethereum blockchain while studying law at the University of Helsinki. This got him to investigate how the existence of such blockchains would affect the world’s financial system.

Upon its release in 2017, it was referred to as ETHLend, a platform that allows users to lend and borrow Ethereum. The public received this DeFi app well, allowing its Initial Coin Offering (ICO) to be $16.2 million. During this period, ETHLend introduced its native token called LEND.

With the creation of ETHLend, Stani acquired some valuable experience and decided to advocate for an open transaction system. This led to the rebranding of ETHLend to AAVE in 2018.

Unfortunately, the rebranding brought about many changes to the network, especially to the Lend tokens. Hence, individuals that still owned Lend tokens were allowed to exchange 100 Lend for 1 AAVE.

How Does AAVE Work?

AAVE works by using a Decentralized Autonomous Organization (DAO) protocol to create a lending pool. These lending pools are created using a non-custodial liquidity mechanism.

The cryptocurrency network works like a standard loan financial institution. Here, lenders can provide their native tokens to be used for the liquidity pool to earn a tidy interest. Borrowers can borrow certain crypto funds using suitable collateral while paying back with interest.

To this effect, there are mainly two types of tokens: AAVE tokens and aTokens.

• AAVE tokens are the native cryptocurrencies of the network.
• aTokens are like a badge issued to the users, enabling them to collect interest on their lending activities.

The collateral that this network accepts is usually in the form of fiat currency or other cryptocurrencies. For collateral to be suitable, it needs to cost more than the cryptocurrencies you’ll be borrowing. This concept of over-collateralization provides financial security to the lenders in the case of a crypto price fluctuation.

The platform will liquidate their collateral when customers don’t pay back the borrowed crypto assets. It will then use it to recover all the customer owed. This can also happen when the amount the customer offers doesn’t entirely pay off the loan.

Among the loans offered by AAVE are Flash Loans, which require no collateral. A flash loan can occur in seconds and requires customers to borrow cryptocurrency for a quick trade. The customer borrows the cryptocurrency, quickly trades it, earns some profit, and returns the original amount.

Is AAVE a Good Investment?

This cryptocurrency is an outstanding investment for investors since it allows them to borrow cryptocurrency without being charged a transaction fee. The platform also offers more tokens to customers using AAVE coins as collateral.

The platform has slowly become popular due to its regular and flash loan services. All these qualities have made it a suitable investment opportunity since the DeFi marker will only get bigger.