Aave (ETH: $AAVE) is a decentralized non-custodial liquidity protocol, that operates on various Layer-1 and Layer-2 blockchains, allowing users to earn a passive income in the crypto space.
Users of Aave can participate as either borrowers or depositors of various digital assets. Depositors on the protocol provide liquidity and receive a passive income. For borrowers, the protocol allows them to access over-collateralized or under-collateralized credit.
A Short History of the Aave Protocol
The Aave protocol was launched in 2017 as ETHLend, with the native token LEND. In January 2020, the team launched the Aaave mainnet, which brought new features and changed DeFi forever. V3 of the Aave protocol was launched in March 2022, bringing cross-blockchain functionality into the ecosystem via a feature called Portal.
In January 2023, the community voted to launch V3 on the Ethereum blockchain, which brought new capabilities and features to Aave, such as Flash Loans. The team also began work on the Lens Protocol, a decentralized social media platform, which they launched in the middle of 2023.
How Aave Works
Aave is one of the leading protocols in the DeFi space. Like most other protocols in the space, it allows users to lend and borrow assets within a third-party intermediary.
Aave is quite easy to use. You only need to supply an asset and amount of your choice. You can then start earning a passive income based on market demand. Supplying assets lets users borrow using the supplied asset as collateral.
Any interest earned from supplying assets is used to offset the interest rate accumulated on the borrowed amount. Protocol users incur a transaction fee for using the Ethereum blockchain, which is based on network activity and the complexity of the transaction.
Aave Flash Loans
One of the most innovative features of the Aave Protocol is Flash Loans. The feature allows users to borrow large quantities of assets without collateral if the liquidity is repaid within one block transaction.
The full utility of this unique feature has yet to be realized within the DeFi space. However, various use cases have already been developed, such as the popular compound yield farming techniques on InstaDapp. Best of all, the code for flash loans is open source, which has opened up endless possibilities for Ethereum developers working in the DeFi space.
Security on the Aave Protocol
Assets supplied to the Aave protocol are stored in a smart contract, verified, and audited by third parties. Users can withdraw the funds from a pool or export a tokenized version as aTokens to a lender position. The aTokens can be traded as any other asset on Ethereum.
To ensure the security of the entire ecosystem, Aave uses the services of TRM Labs, a blockchain intelligence service. TRM combines on-chain data with real-world crime reports to identify prohibited activity. The data is used to block any flagged wallets from accessing the Aave app. The process can be appealed if one feels they have been wrongly flagged by contacting TRM Labs at firstname.lastname@example.org.
AAVE Token Details
$AAVE tokens are the governance tokens of the Aave Protocol. They are used to vote on Aave Improvement Proposals (AIPs). Additionally, AAVE can be staked to provide security and insurance to the protocol and suppliers. Stakers receive staking rewards and fees.
The total supply of AAVE is 16 million, with 13 million being redeemable by LEND holders at a ratio of 100 LEND for 1 AAVE. The other 3 million were placed in the Aave Reserve, which the AAVE token holders control. They are used as an incentive for the growth and development of the AAVE ecosystem.
AAVE Token Price Performance
The price of $AAVE is $64.54 as of September 20, 2023. It achieved its all-time high price of $666.86 on May 19, 2021. The current price is a 90.47% discount on the ATH. Its market cap is $924,179,999, making it the #43 most valuable cryptocurrency. AAVE has a 24-hour trading volume of $85,557,400 as of September 20, 2023. Most of the volume is on HTX, Bitunix, and BIKA, which account for around $52 million.
The Future of AAVE Looks Promising
The Aave Protocol is one of the most innovative DeFi protocols in the world. As the protocol’s use cases continue to grow, the popularity of AAVE will continue to rise. Consequently, the price of AAVE will likely continue to rise in the future.
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