What is Aave ($AAVE) and how does it work?
Aave is a prominent blockchain project that has gained popularity in the decentralized finance sector (DeFi) in recent years.
Aave is a non-custodial, open-source protocol for lending and borrowing assets. Lenders can earn interest on their deposits, and borrowers can use their crypto as collateral to borrow various altcoins and stablecoins supported within the system.
Aave was created in response to the growing demand for decentralized money markets and represents one of the largest markets of this type. AAVE is the native token of the protocol and is based on the Ethereum network. Aave users can use AAVE tokens to participate in protocol governance and earn staking rewards.
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What is Aave (AAVE)?
Based on the Ethereum network, Aave is one of the largest money markets in the DeFi sector and crypto market. The Aave protocol consists of liquidity pools from which users can borrow or lend any of the supported altcoins and stablecoins.
Aave lending platform is the leading protocol through which borrowers and lenders can create a money market without the need for a third party or custodians. As the DeFi industry develops and demand increases, Aave has become an integral part of the industry. The Aave protocol is governed by AAVE owners. AAVE is the native token of the network and can be staked to earn rewards as well as providing governance rights. Lenders who place deposits in liquidity pools can earn interest on their balances.
How Does Aave Work?
The Aave protocol works based on an algorithm that enables automatic lending directly from Aave liquidity pools, instead of matching the lender and the borrower one by one. Lenders can deposit crypto assets into liquidity pools and earn interest based on the amount they deposit and lend.
Interest rates are paid by borrowers and depend on the utilization rate; This means that interest rates depend on the number of assets in the pool. If assets are fully utilized, interest rates will be higher to encourage lenders to invest more assets with borrowers. If not all assets in the pools are used, interest rates will be lower to attract borrowers and encourage borrowing, thus borrowers and lenders become mutually dependent.
Aave loans are over-collateralized, which means users must deposit money in the form of collateral of a higher value than the amount they borrow. If the borrowed assets are not returned within the given period, collateral is taken by the lenders. Since the cryptocurrency market is volatile, Aave implements a liquidation process if the value of the collateral falls below the collateral rate defined and determined by the Aave protocol. Aave also allows flash loans; This means borrowers can get unsecured loans as long as they pay the interest fee, known as the monoblock.
Who are the Founders of Aave? (History of Aave)
Aave founder Stani Kulechov and a team of developers have released a network for lending and borrowing crypto assets known as ETHLend. The initial coin offering (ICO) for ETHLend was held in November 2017, and the system was a new concept that required technical adjustments to create liquidity and enable seamless borrowing and lending. The system worked based on sending borrowing and lending orders so that users could match these orders and create a money market.
The system's native token was LEND, but the project lost traction in 2018 due to bear markets and a lack of liquidity for borrowing and lending orders. The project was rebranded as Aave (AAVE), and the team created an automated protocol with pools for borrowing and lending various crypto assets. The new project Aave was released at the beginning of 2020.
What Makes Aave Unique?
Aave is unique in the DeFi market and is said to be one of the best money markets when it comes to liquidity and technical features. What sets Aave apart from the rest of the industry of DLT (distributed ledger technology) lending platforms is the ability to borrow and lend a wide range of crypto assets, including the most traded cryptocurrencies like Ethereum (ETH) and other altcoins and stablecoins. is the ability.
Aave also pioneered a feature known as flash loans. These allow protocol users to borrow crypto assets without depositing collateral. Flash loans involve returning liquidity to the pool within a block of transactions.
Aave is also interoperable with numerous DeFi platforms, providing the best value to people who choose Aave to borrow and lend their cryptocurrencies.
What Makes Aave Worth It?
Aave is valued for its technical capacity, usefulness and features. However, Aave's value is also determined by its supply, which is limited to 16 million AAVE. The Aave system uses the money paid in fees to purchase AAVE and remove it from the circulating supply. In this way, Aave is burned and the supply gradually decreases. Approximately 80% of the fees are used for this process, and the remaining 20% is used to encourage lenders to the system.
Aave's value is also determined by the adoption and popularity of the protocol, while AAVE's market value is determined by the balance between buying and selling in the markets.
How Many Aave (AAVE) Coins Are in Circulation?
Of the maximum supply of 16 million AAVE tokens, approximately 12.5 million are in circulation. The system uses most of the revenue generated through fees to buy back circulating AAVE, which is then destroyed in the burning process, regulating the Aave supply and contributing to the liquidity of the protocol.
The number of AAVE in circulating supply multiplied by the current Aave price in the market equals the market value of the token. Market cap defines AAVE's market ranking and market dominance compared to other cryptos in the market.
Other Technical Data
Aave has a Security Module where AAVE is deposited to act as a safety net in case of capital shortage. If there is a lack of capital in the system, the protocol will use the funds from the Security Module to cover the shortfall by selling the deposited AAVE. This is a way for the system to prevent losses and strengthen the capital involved in the lending protocol.
Besides a use case as collateral and capital protection, the AAVE service is also about governance. AAVE owners can propose and vote on changes that may affect system parameters and the Security Module. In this system of governance, one AAVE equals one vote.
How is the Security of the Aave Network Ensured?
The Aave network is secured through the Aave protocol, which is regularly audited and improved to ensure the highest standard of security for lenders and borrowers using the platform. Loans are secured through collateral, as borrowers must deposit collateral to obtain a loan. Overall security is increased by overcollateralization, as borrowers are required to deposit a greater amount of collateral than the amount they receive as a loan.
Pools are hosted in non-custodial smart contracts on the Ethereum network, providing an additional layer of security through security updates on Ethereum
How to Use Aave?
Aave can be used as collateral when obtaining a loan and paying loan fees. The token is also used by the Aave community to propose and vote on changes to the system and the Aave protocol. In the governance system, one AAVE token equals one vote, so people with more AAVE have more voting rights.
Aave is also used to secure capital in the system as there are backups in the Security Module sold in case of insufficient capital in the system. You can also use AAVE as a way to make a profit by trading. The AAVE price is subject to frequent changes and investors can make profits based on the difference between the bid and ask prices.
How to Choose Aave Wallet;
Aave is an ERC-20 type token and therefore can be stored in any wallet that supports ERC-20 tokens built on ETH and Ethereum. There are many options to safely store your Aave funds; so owners can choose between hardware, desktop, mobile or browser-based wallets.
Hardware wallets, or cold wallets like Ledger or Trezor, offer the most secure option with offline storage and backup. However, these may require a bit more of a learning curve and are a more expensive option. Therefore, they may be better suited to storing larger amounts of AAVE for more experienced users.
Software wallets offer another option and are free and easy to use. They can be downloaded as smartphone or desktop applications and can be for retention or non-retention. In custodial wallets, private keys are managed and backed up by the service provider on your behalf. Non-custodial wallets use secure elements on your device to store private keys. Although convenient, they are viewed as less secure than hardware wallets and may be more suitable for smaller AAVE or more novice users.
Online wallets or web wallets are also free and easy to use and can be accessed from multiple devices using a web browser. They are considered hot wallets and may be less secure than hardware or software alternatives. Since you'll likely be relying on the platform to manage your AAVE, you should choose a reputable service with a track record in security and retention. Therefore, they are best suited for holding smaller amounts or for more experienced frequent traders.
Buying, selling or exchanging AAVE for another cryptocurrency takes just a few minutes when you choose our secure platform as your storage solution.
Aave Mining and Staking;
Aave holders can split their AAVE balance in the Security Module and earn rewards. Aave can also be staked in pools where lenders can earn interest based on their deposits. The project is launching an Aave Mining Pool that will increase liquidity for stablecoins and DeFi tokens.
While these mining pools are set up to reward both lenders and borrowers for participation, the concept is not crypto mining in the traditional sense as with Bitcoin. The system trusts stakers because the protocol is open and not monitored.
Conclusion :
Aave is an integral player in the decentralized finance industry. The project is rapidly gaining value with new functionalities and unique features such as flash loans and liquidity mining for stablecoins and DeFi tokens. Aave's developers and community are working together to make the borrowing and lending of crypto assets accessible to everyone, to create an o
pen financial system that can operate without custodians and in a completely decentralized manner.
