AAVE: A BRIEF SUMMARY

Aave (AAVE) is a DeFi protocol for lending and borrowing cryptocurrencies. Lenders are paid interest on their deposits to liquidity pools. Borrowers can use their crypto as collateral for a flash loan. Originally known as ETHLend, Aave was founded by Stani Kulechov.

WHAT IS AAVE (AAVE)?

Aave was founded in 2017 by Stani Kulechov and today is headquartered in London. It’s goal is to develop a decentralised non-custodial financial market protocol in which users can participate in as lenders or borrowers. The project is facilitated by its own token AAVE.

The Aave ecosystem works by lenders providing liquidity so they can generate passive income, meanwhile borrowers are in turn able to take out loans using their own crypto assets as collateral.

The Aave Protocol supports over 15 different crypto assets, including stablecoins most notably USDC. Aave Tokens (aTokens) are created when assets are deposited on the Aave Protocol.

These are different to AAVE as they track the value of the underlying asset and are burned when the loan is repaid (i.e. aETH). While the underlying asset is on loan to the borrowers, aTokens earn interest in real time. Moreover, they are free to be stored, transferred and exchanged as the user pleases.

Aave also offers sub-collateralised solutions. Here, the protocol makes it possible to instantaneously grant loans without any guarantee being present.

Before Aave’s rebranding, it was known as ETHLend, but it was abandoned to highlight its shift from a decentralised P2P lending strategy to one based on liquidity pools.

Under its old name, their native token was called LEND, which too was replaced at the end of 2020 following a community-accepted migration in July 2020. For every 100 LEND you received one AAVE.

The word Aave is actually Finnish and means “ghost” in English, representing its goal of creating a transparent and open infrastructure in a highly decentralised financial world.

What is Aave (AAVE) for?

As mentioned in the introduction the Aave project runs usings its token AAVE and aTokens which are guaranteed on their underlying assets such as ETH or USDC. AAVE is first and foremost a utility token but in particular, it can be used to reduce the costs of the various Aave services as well as giving you rights to the governance of the protocol.

AAVE can be used to vote and decide the outcome of Aave Improvement Proposals (AIP). Furthermore, AAVE is eligible for staking as part of the protocol’s security module. This provides security for depositors and helps generate passive income.

It is important to know that the AAVE tokens you use to pay fees on Aave are automatically burned. As a result, it naturally reduces the number of tokens in circulation increasing its rarity and in turn potentially its value.

As for the Aave protocol itself it is part of the very important and growing crypto sector of decentralised finance (DeFi). By connecting borrowers and lenders the Aave Protocol creates rates that markets conditions dictate, essentially providing the fairest rates on the market. If there is a huge increase in the number of individuals wanting to borrow ether (ETH) for example, the reward for lenders would increase accordingly. Below is a snapshot of the rates in early March 2021:

As you can see Binance’s USD stable coin, BUSD, is in high demand hence its past 30-day average payout of just over 12%.

How does it work?

The Aave Protocol implements a tokenisation strategy for liquidity providers. When a deposit is undertaken, the user receives the corresponding quantity of tokens of derivative products called aTokens.

These are 1:1 equivalents of the underlying crypto asset that the user has provided and use Ethereum’s ERC 20 standard. The number of the user’s aToken increases over time, thanks to the constant accumulation of interest generated by all deposits, the rates of which you can see above in the image.

ATokens naturally implement the concept of interest rate resetting. This concept makes it possible to find out the value accumulated over time through interest paid by borrowers since the loan was originally created.

As soon as a wallet linked to Aave which contains aTokens, the interest accumulated can be forwarded to any address allowing the original balance and the interest generated to be separated.

Despite the advantages that this tokenisation model presents, it comes with a drawback. It is not possible to transfer the entire balance in a single transaction.

The reason behind this is that the exact amount of a transfer cannot be entered, as interest is continuously being generated, even while a transfer is being confirmed! This means that a very small balance (more commonly known as ‘dust’) will always be left on the wallet once the transfer has been conducted.

How to buy AAVE tokens?

AAVE can be bought on most major exchanges (such as Coinbase & Kraken) but the easiest and cheapest way to purchase AAVE is on SwissBorg, Crypto.com or Binance. If you have not used either of these exchanges before be sure to read our guides on how to buy cryptocurrency in our Ultimate Buying To Guide section. Also use the code TCT50 when signing up to Crypto.com to get a free card and $25 or set up a Binance account and get discounts on your trading fees. 

On the SwissBorg app you can purchase AAVE with a large range of cryptocurrencies and fiat currencies! These include US dollars, pounds as well as the likes of BTC, ETH & DAI. Of course you can buy AAVE with their native token CHSB! 

What’s even better if you have not used the SwissBorg app before you can get upto €100 worth of free Bitcoin just by using our referral link!

To buy AAVE on SwissBorg, tap the Marketplace tab scroll down to find AAVE click on it and then simply tap Buy Aave. It’s as simple as that!

On Crypto.com you can buy AAVE using BTC, USDT or the native token CRO. Simply click on Trade then Buy.

You then need to use the search bar to find AAVE, once you have clicked on it and selected Crypto Wallet, choose either BTC, USDT or CRO clicking buy once you have picked your desired amount. You then have 15 seconds to Confirm the trade!

On Binance, you can buy AAVE with either BTC, ETH, USDT, BUSD or Binance’s native token BNB. There are also leveraged options of AAVEUP or AAVEDOWN for the more daring amongst you.

Once you have found your chosen pairing i.e. AAVE/BTC through the Markets tab at the bottom of your app, click BUY. Then you can choose the price you wish to purchase AAVE at and the total amount you wish to spend in the cryptocurrency you have chosen (in this case BTC). Once this has all been decided, click Buy AAVE. Your order has been submitted, if you have chosen a market order it will be executed immediately, if you chose a limit order your order will only be executed once the said price has been reached.

What’s our opinion on Aave (AAVE)?

Here at CoinTribune we believe that Aave Protocol has a bright future especially as DeFi is gaining more and more notoriety not just in the crypto sphere but further afield in the world of finance!

As with most cryptocurrencies Aave’s goal is to democratise and decentralise the current status quo where interest rates are controlled by governments and central banks. The people have no say in what happens to the value of the money that they use on a daily basis!

Whether this will increase or decrease AAVE token’s value is impossible to say, especially after its fantastic rally to over $500 in early 2021. Is now the time to buy? Do your own research and make up your mind!