What is AAVE?
Currently there are over 4000 different kinds of crypto currencies existing all across the globe. Aave is one of them. Those who are new to the crypto world I will explain what Aave is, what are its uses. For pros that have been in this field, the following would enlighten you about its latest features and functions.
What exactly is Aave and what does it do, a question many don’t have an answer to. It is a decentralized financial app system that allows people to lend and borrow crypto currencies in return for getting and paying fees. This might sound familiar as banks do the same, so is it like a bank for crypto?
Created in 2018 its a lending program that determines lending rates and matches lenders to the borrowers. The Aave token is an Ethereum based token and the holders have a vote in any changes made as the app goes on. AAVE, in Finnish means ghost this is simply because the identity of the lenders and borrowers remains anonymous.
Aave has evolved from ETHLend that was created in 2017, a peer to peer lending program. Soon they started facing problems like liquidity and how to match lenders and borrowers and to solve this Aave was created and it utilized smart contracts. It shifted from peer to peer lending to peer to smart contract method. Lenders can deposit in crypto and borrowers can loan against collateral into a smart contract. Loan rates are based on how much liquidity is in each contract.
How does it work?
On the face of it, this might seem like a daunting technical task but in reality is quite simple. When you deposit your crypto with Aave, they pay you interest on it and once the lending process is over you can decide to borrow against it. When it comes to loaning in crypto they are over- collateralized because of the volatile rates.
Additionally Liquidation Threshold serves as a safety net so none of the investors loose money. This allows them to sell the collateral if borrowers fails to repay. Aave offers the borrowers some benefits too, as long as your position is safe you can keep borrowing and paying back bit by bit. Risk of asset liquidation increases as time increases. This makes it stand out in the world of the traditional loaning.
Rise of Aave, why should you invest?
The total value locked in Aave in just a year has gone from 0 to $3 billion. Last year in April it was at $ 40 million whereas later in August rose up-to $ 1.5 billion. In December it was at $ 2 billion and was granted the electronic money license by the U.K. Financial contract authority. In the beginning of this year Aave reached its all time high, $ 3 billion.
Features of Aave
Flash loans- This allows you to borrow millions of dollars worth of crypto currencies without any collateral. The catch being, loan must be paid back in the same crypto block chain transaction.
In July, an upgrade was announced, Aavenomics, aimed at making it more decentralized. This allowed token holders to participate in its governance. Features like Token Migration at 100:1 ratio, ecosystem incentives along with the most interesting of them, Safety Module in which 30% is kept aside. This safety amount would be slashed and used to pay back the investors if there ever is a shortfall. Although highly unlikely they serve as insurance to the investors. Collateral swap and batch flash loans are some additional features.
For the longest time we have relied on fiat money and partaken in its lending and borrowing as we had financial institutions providing us loans and insurances. Now these benefits are added to digital currency along with its existing benefits. Making the future of Aave and its investors seem extremely bright.