What is Aave (AAVE)?
Description
Decentralized finance (DeFi) has become very popular and has opened up access to many popular services, such as credit, debit and interest-bearing liquidity. One of the most popular services is the decentralized Aave protocol. Let's answer the question: what is Aave?
What does Aave mean?
Aave is a decentralized protocol Aave DeFi based on the Ethereum blockchain. The project's main purpose is to allow all protocol users to lend anonymously (and earn money) and to borrow anonymously. AAVE is the Aave project's cryptocurrency.
A history of Aave
On 1 May 2017, Finnish Master of Laws and programmer Stani Kulecov founded ETHLend. The company's leading project was ETHLend.io, a P2P lending platform. The ICO raised $16.2 million, but in its first year of operation, it became apparent that the platform lacked liquidity.
The developers took into account all the project's shortcomings, rebranded, and in autumn 2018, presented a new product to the public — Aave. A noteworthy point, which largely explains the mechanisms of the Aave protocol, is that the word means "ghost" in Finnish. Hence in this crypto-project, participants can lend or borrow anonymously without revealing their identity. Interrelation of ETHLend and the Aave project
The new and improved project became owned by the parent company Aave, while ETHLend became a subsidiary. One year later, in the autumn of 2019, the first version of the public test network Aave Finance V1 was launched. After another three months of thorough testing and debugging of the test network, the release version of the main Aave network was launched on the Ethereum blockchain in January 2020.
In October 2020, the Aave network's own AAVE token was launched. The successful trading of the native cryptocurrency accelerated the investment and update processes, which led to the launch of the current network version Aave V2 in December 2020.
How does Aave work?
Anyone can deposit funds on the platform to lend at a certain interest rate or borrow funds.
It all looks simple and clear, but lending together with DeFi doesn't make sense, right? Let's explain with examples the two platform mechanisms — lending and borrowing.
Lending:
- User "A" deposits funds into the platform (any of the cryptocurrencies used by the platform), receiving aTokens at a rate of 1:1;
- aTokens work like certificates of deposit, i.e., they allow you to accumulate interest;
- "deposited" tokens are sent to a common pool where borrowers take them at interest;
- borrowers return borrowed tokens with interest to the pool after some time;
- user "A" returns aTokens to the platform and receives their originally deposited tokens for credits, along with accrued interest set by the system.
Borrowing:
- User "B" needs a loan and deposits collateral security into the platform;
- The platform, according to the formulas for calculating the loan amount, lends user "B" the required tokens (cryptocurrency);
- User "B" deposits the borrowed tokens with the required added interest into the platform after some time.
So none of the steps/stages in the processes mentioned involve going through KYC. And this is the core principle of DeFi — anonymity.
Advantages of Aave Finance
Let's highlight the network's main and exceptional strengths:
- Unique mechanism for earning on lending and borrowing in complete anonymity;
- Feature to change the currency of the collateral security — for example, if the borrower foresees a decrease in the value of the pledged cryptocurrency, they can swap to another more stable token at the current exchange rate;
- The new version of the Aave V2 protocol has significantly reduced the use of gas within transaction support. So on average, users now pay 50% less;
- Users can now get a loan without posting collateral. Under this scheme, the lender delegates the right to borrow to any specific borrower and establishes the rules/conditions for repayment through smart contracts by depositing funds on the platform;
- Aave has launched a DeFi-based social network, Lens Protocol (Twitter analog). Its "schtick" is NFT profiles, where any profile content can be sold/purchased as part of smart contracts. Aave based its network on Polygon's technological solution.
- The summer of 2021 brought an update that enriched the protocol branch with a new institutional Aave Arc. Within it, fintech companies and corporations, having gone through phases of Fireblocks verification to comply with KYC regulations, were given the same borrowing and lending capability as the main DeFi version of the Aave V2 protocol;
- aTokens are beginning to be used in games and meta-universes metaverses as collateral for NFT characters.
As seen from the list, Aave is technological, versatile, highly productive, and promising.
How Aave cryptocurrency works
The network's native token went public in the autumn of 2020 and was worth between $53 and $29 in the early days of trading. By now (early March 2022), Aave's definition has changed, and the altcoin has risen to $117 per AAVE. The currency has a market capitalization of $1.594 billion. Of all the 10,000 cryptocurrencies in the world, AAVE is in the top 100, ranking 55th.
The absolute maximum value of the token was recorded on 18 May 2021, when its exchange price reached $666.86.
AAVE rate forecasts for 2022-2032:
- 2022 — up to $165;
- 2023 — up to $250;
- 2024 — up to $360;
- 2025 — up to $510;
- 2026 — up to $740;
- 2027 — up to $1020;
- 2028 — up to $1400;
- 2029 — up to $2090;
- 2030 — up to $3000;
- 2031 — up to $4500;
- 2032 — up to $5200.
Conclusion
Aave is one of the leading DeFi projects. It offers anonymous loan-earning opportunities, as well as lending on favorable terms. The project is growing, attracting investments, and expanding its crypto-geography. The project's own cryptocurrency is showing growth and, according to forecasts from the world's leading analytical agencies, due to how Aave works, will grow in value 40+ times over the next 10 years. So it's an extremely attractive investment asset.
The EXEX, a cryptocurrency trading platform, provides AAVE trading on favorable terms. And we don't give financial advice, and we just help you increase your capital: use handy widgets and indicators, and manage your risks with our deposit protection system. Upgrade your skills continually. That's the key to financial independence.
