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What Is AAVE and How Does It Work?

Crypto lending has emerged as one of DeFi’s (Decentralized Finance) most promising use cases, attracting a slew of platforms, tools, apps, and players all claiming to revolutionize the way tokens are lent and borrowed. 

Aave (from the Finnish word for “ghost”) is a decentralized application (dApp) built on Ethereum, which is an independent blockchain. It provides crypto-related financial services without the need of a centralized intermediary. To put it simply, Aave is a decentralized financial system that enables users to lend and borrow cryptocurrency. Because of its utility for crypto investors, it appears to be destined for long-term success.

What Is Aave and How Does It Work? 

Aave (AAVE) is a decentralized finance protocol designed for use in the field of decentralized lending. It allows you to lend and receive cryptocurrency in exchange for interest. There had already been decentralized lending ventures in the sector, but Aave offers several unique characteristics.

Aave has a lot of cool features and financing options. It accepts a variety of cryptocurrencies for lending and borrowing. Dai, Ethereum, Tether, Wrapped Bitcoin, and other Ethereum-based currencies are all supported. Aave has the most features of all the “debt” protocols.

The average annual percentage yield (APY) on savings accounts, according to the FDIC, is barely 0.06 percent. In addition, instead of paying a large dividend, many public firms decide to reinvest their profits or buy shares. This lack of attractive returns presents an opportunity for Aave, which allows users to earn interest on their cryptocurrency holdings while also taking on exchange-rate risk by lending them to other users through liquidity pools, which act as a “bank” of digital assets from which borrowers may draw.

AAVEs quick loans, flexible interest rates, and anonymity are some of the key characteristics. In terms of anonymity, Aave clients are not required to go through KYC or other anti-money laundering or anti-terrorism funding processes in order to lend or receive funds. However, in some circumstances, anonymity increases institutional barriers and raises the risk factor. “These are dark pools of lending, with no regulation but huge risk,” Susannah Streeter, senior investing and markets analyst at Hargreaves Lansdown. “It’s a speculative twilight world, where currencies lent out can soar or fall in value, mirroring chatter on social media forums.”

Lending

Lenders provide liquidity by depositing funds that are collected into liquidity pools. Each pool sets assets aside as reserves to hedge against volatility. To avoid possible liquidity issues, Aave has set up liquidity pools on Balancer and Uniswap so lenders can redeem their funds at any time.

Flash Loans

Flash Loan’s total loan volume has topped $9.8 billion and is likely to cross $10 billion by the end of October. With Flash Loan, Aave enjoys a first-of-its-kind edge over other lending platforms. The product has a specific user barrier and is best suited to developers with some programming experience. It is distinguished by the ease with which customers may acquire loans without having to put up any assets as collateral. They’d just have to pay back the money they borrowed inside the same block (about 15 seconds). The transaction is cancelled without affecting the user if they are unable to repay the loan inside the same block. If the loan is approved, they will be charged a 0.09 percent fee.

Borrowings

To borrow crypto assets, customers must first secure collateral that is 50–75 % more than the amount borrowed. This safeguards the funds in the protocol in the event that users default on their loans. The collateralization ratio must be maintained by borrowers. If they don’t, their collateral will be auctioned or liquidated to repay the debt. Investing yields interest, which helps to offset the interest rate charged on loans.

aTokens

Aave interest bearing tokens (aTokens for short) are minted upon deposit and burned when redeemed. The aTokens are pegged 1:1 to the value of the underlying asset that is deposited in Aave protocol. ATokens, such as aDai, can be freely stored, transferred, and traded.

Borrowers can use this exchange mechanism to get access to a variety of cryptocurrencies without having to possess them. Lenders have the chance to earn interest on deposited assets on a continuing basis. The currency, its loan supply, borrowing demand, and usage rate all influence interest rates. In addition, holders of aTokens earn a portion of the fees collected through Aave’s Flash Loans mechanism.

 

AAVE Price fluctuations

The current price of Aave is $175, with a 24-hour trading volume of $226,278,367. Aave has dropped 20 percent in the previous few days. AAVE ranks at 59, with a market capitalization of $2.3 billion. It has a total quantity of 16,000,000 AAVE coins and a circulating supply of 13,392,219 AAVE coins.

Over the last week, AAVE has plunged against the US dollar and ETH, but it may have found a steady support level. AAVE has gone through an eleven-month consolidation process. Since the beginning of the year, it has recorded a sequence of lower highs and higher lows, with no clear indication of where it will go next.

To move toward its previous all-time high of roughly $667, AAVE must first record a monthly spike close above the $330 resistance level.

Cryptocurrencies are notoriously fickle when it comes to long-term investing. However, because of their solid foundations, Ethereum and Aave are likely to outperform in the long run. Furthermore, both assets have first-mover advantages and will profit from Ethereum 2.0 enhancements, making them top alternatives for long-term investors.

Who are the people behind Aave?

Stani Kulechov created Aave and its successor, ETHLend. He was dissatisfied at the time by the absence of loan apps on Ethereum, despite the fact that his idea was created before decentralized finance existed.

Originally from Helsinki, Finland, Stani Kulechov is a serial entrepreneur who studied law and started programming as a teenager. In the blockchain area, he was an early adopter. When Stani initially became interested in Ethereum, he was a law student at the University of Helsinki, and he began to investigate how it would affect the old financial system.

Aave is based in the United Kingdom and now employs nine people, including CEO and Founder Stani Kulechov. Aave has raised $49 million in six rounds of investment. Their most recent fundraising came through a Secondary Market round on January 30, 2021. Aave is backed by a group of eight investors. The most recent investors are NON-fungible Chan and Blockchain Capital.

 

 

 

 

 

 

Image: sergeitokmakov

*Disclaimer: Fyggex, does not give any guidance, advice or recommendations to neither invest or not in any available NFTs or cryptocurrency directly or indirectly via any trading platform, exchange or provider. Our sole purpose is to make you aware of the related real or potential risks and opportunities so that you can make your own research prior to any financial decisions you may want to take. Past performance and position are not a guarantee of risk-free future returns.

 

Sources

aave.com/

coinmarketcap.com/currencies/aave/

github.com/aave/protocol-v2/blob/master/aave-v2-whitepaper.pdf

finance.yahoo.com/news/aave-destined-stay-top-defi-183535280.html

www.the-sun.com/money/4069997/aave-price-prediction/

www.fool.com/investing/2021/11/25/2-top-cryptocurrencies-to-buy-and-hold-forever/

www.newsanyway.com/2021/11/25/aave-aave-what-is-the-project-how-it-works-what-are-the-prospects/

www.investing.com/analysis/aave-looks-poised-to-rebound-200609368

www.forbes.com/sites/matthougan/2021/11/09/people-dramatically-underestimate-the-power-of-defi-a-lesson-from-airbnb/?sh=30a82675278c