What Is Aave (AAVE) and How does it work?
AAVE is the traditional token of the rule of the Aave protocol. Owners of Ethereum-based cryptocurrency can discuss and vote on proposals that affect project direction.
Because Aave is one of the leading financial protocols, the AAVE token is one of the biggest Defi characters in the snow market. Ethereum investors can easily borrow and lend their cryptocurrency in a separate manner via Aave.
Central to any modern financial ecosystem is the ways in which people can borrow and lend their assets. Borrowing allows a person to use his money to carry out tasks, while borrowing allows a person to get a normal and safe return on his or her non-performing income in some other way. Cryptocurrency developers have acknowledged the need for such services, launching so-called financial markets. Aave is one of the largest and most successful markets.
What is Aave?
Aave is an Ethereum-based money market where users can borrow and borrow many types of digital assets, from stable coins to altcoins. Aave Protocol is governed by AAVE owners. It will be difficult to understand what an AAVE token is without understanding the Aave protocol, so let’s get into it.
The origins of Aave go back to 2017. Stand Kulechov and the developer team released ETTHlend on Initial Coin Offering (ICO) in November 2017. The idea was to enable users to borrow and lend cryptocurrencies by allowing users to submit loan applications and offers.
While ETHLend was a visionary novel, the platform, with its LEND token, was lost in the 2018 bear market. Significant pain points on the platform were the lack of funding and the difficulty of comparing loan applications and donations. So, with the bear market 2018 and 2019, the ETLend team redesigned its product, releasing Aave in early 2020. In a podcast, Kulechov said the bear market is one of the best things that could happen to ETHLend. This refers to the opportunity he and his team were given to revitalize the concept of cryptocurrency borrowing, building on what we now know as Aave.
How Aave works
The new and upgraded Aave is similar in concept to ETHLend. Both allow Ethereum users to obtain a cryptocurrency loan or get a loan by borrowing their goods. But, at their core, they are different.
Aave is an algorithmic currency market, which means that borrowed money is acquired at the swimming pool instead of individually by lenders.
The interest rate charged depends on the “consumption rate” of the assets on the platform. When almost all the assets in the pool are used, the interest rate is high to attract financial providers to invest more. If there are almost no assets in the used lake, the interest rate charged is lower to attract borrowing.
Aave also allows users to take out loans with a different cryptocurrency than they have installed. For example, a user might enter Ethereum (ETH), and then extract stablecoins to enter Yearn. finance (YFI) for normal yields. Like ETHLend, all loans are extremely cooperative. This means that if you want to borrow $ 100 cryptocurrency with Aave, you will need to invest more than that amount.
Due to the volatility of cryptocurrencies, Aave is embarking on a shutdown process. If the collateral you provide falls below the co-operative rate specified by the law, your collateral may be terminated. Note that there is a charge in case of closure. Make sure you understand the risks of investing in Aave before submitting a mortgage
Other key features
Aave expands its scope beyond the financial markets. The platform has gained popularity as a place where Defi users can get flash loans.
More often than not, there is a lot more money in the Aave currency market than the loans required by borrowers. This unspent amount can be used by those who take flash loans, which is a non-existent loan available for one Ethereum block period.
Basically, a flash loan allows a user to borrow a large amount of cryptocurrency without sending collateral, and then repay the loan within the same transaction (as long as he pays interest on a single block). This allows those who do not have large amounts of money to settle and create more opportunities – all within one blockchain. For example, if you see Ethereum trading 500 USDC on Uniswap and 505 USDC on other exchanges, you can try to adjust the price difference by borrowing a large USDC and making a quick trade. In addition to borrowing money and other features, Aave also operates on a free token (NFT) game called Aavegotchi.
While ETHLend was renamed Aave, its LEND token stopped. This was troubling because LEND did not have the correct code to work the way the Aave team wanted. That is, LEN owners could not control the Aave protocol. This was a problem as Aave received a growing amount of revenue and its users were unable to make changes to the protocol. Then, it was proposed that LEND be converted to a new currency called AAVE at a rate of 100 LEND to AAVE at a single rate.
AAVE, as the new ERC-20-based ERC-20 token, has brought a number of new usage cases.
First, AAVE owners will act as the protocol backstop. The release of AAVE introduces a new concept called “Security Module,” which protects the system from financial losses. This means that if there is not enough money in the lender to cover lending funds, AAVE in the Security Module will be sold with the necessary assets to cover the shortfall.
Only AAVE included in the module will be deleted due to what is missing. The deposit in the module is encouraged by the standard yield paid to AAVE. The second case of using the AAVE key is related to the Aave protocol rule. Owners of cryptocurrency can discuss and vote on Aave Improvement Proposals, which can be used if accepted with a small amount of AAVE tokens. This includes changing Aave currency market parameters, as well as managing funds in an environmentally friendly environment. Like many other administrative tokens, one AAVE equals one vote. AAVE extends the Defi app continuously and adds an important backstop to the ecosystem to reduce black duck events.