What is cryptocurrency Aave (AAVE) and how does it work?

What is Aave (AAVE)?

Based on the Ethereum network, Aave is one of the biggest money markets in the DeFi sector and the crypto market. The Aave protocol consists of liquidity pools where users can lend or borrow any of the supported altcoins and stablecoins.

The Aave lending platform is the leading protocol where borrowers and lenders can form a money market without the need of a third party or custodians. As the DeFi sector is developing and experiencing increased demand, Aave has become an integral part of the sector. The Aave protocol is governed by AAVE holders. AAVE is the native token of the network and can be staked to earn rewards, as well as providing governance rights. Lenders who make deposits to liquidity pools can earn interest on their balances.

How Does Aave Work?

Instead of having to individually match a lender to a borrower, the Aave protocol works based on an algorithm that enables automated loans directly from Aave liquidity pools. Lenders can deposit their crypto holdings into liquidity pools and earn interest based on the amount they are depositing and lending.

Interest rates are paid by borrowers and depend on the utilization rate, which means that interest rates depend on the number of assets in a pool. If all the assets are used, interest rates are higher to incentivize lenders to deposit more assets for borrowers. If not all the assets in the pools are used, interest rates are lower to attract borrowers and encourage borrowing, so borrowers and lenders are mutually dependent.

Aave loans are overcollateralized, which means that users need to make a deposit in the form of collateral that is higher in value than the amount they are borrowing. In the case that the borrowed assets are not returned within the given timeframe, collateral is taken by the lenders. The cryptocurrency market is volatile, so Aave employs a liquidation process in case the value of the collateral falls under the collateralization rate defined and determined by the Aave protocol. Aave also allows flash loans, which means that borrowers can take out loans without collateral as long as they pay for the interest fee known as one-block.

Who Are the Founders of Aave? (History of Aave)

The founder of Aave, Stani Kulechov, and a team of developers released a network for lending and borrowing crypto assets known as ETHLend. The initial coin offering (ICO) for ETHLend was organized in November 2017 and the system was a new concept that needed technical tweaking to form liquidity and enable seamless borrowing and lending. The system worked based on posting borrow and lend orders so users could match these orders and form a money market.

The native token of the system was LEND but the project lost traction in 2018 due to bear markets and the lack of liquidity for borrow and lend orders. The project was rebranded to 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 it is said to be one of the top money markets when it comes to liquidity and technical features. What sets Aave apart from the rest of the sector of DLT (distributed ledger technology) lending platforms is the ability to borrow and lend numerous crypto assets, including top trading cryptocurrencies like Ethereum (ETH), and other altcoins and stablecoins.

Aave also pioneered a feature known as flash loans. These enable protocol users to borrow crypto assets without depositing collateral. Flash loans involve returning the liquidity to the pool within one transaction block.

Aave is also interoperable with a great number of DeFi platforms, which provides the best value for people who choose Aave for borrowing and lending cryptocurrencies.

What Gives Aave Value?

Aave is valued for its technical capability, utility, and features. However, the value of Aave is also defined by its supply, which is limited to 16 million AAVE. The Aave system uses the money paid in fees to buy AAVE and remove it from the circulating supply. That way, Aave is burned and the supply is gradually reduced. Around 80% of fees are used for this process and the remaining 20% are used to incentivize lenders in the system.

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The value of Aave is also defined by the adoption and popularity of the protocol, while the market value of AAVE is decided by the balance between buying and selling in the markets.

How Many Aave (AAVE) Coins Are in Circulation?

Out of the max supply of 16 million AAVE tokens, around 12.5 million coins are in circulation. The system uses most of the revenue generated through fees to buy back AAVE in circulation which is then destroyed in the burning process, regulating the supply of Aave and contributing to the liquidity of the protocol.

The number of AAVE in the circulating supply multiplied by the current Aave price in the market equals the market cap of the token. The market cap defines the market rank for AAVE and its market dominance compared with other cryptos in the market.

Other Technical Data

Aave has a Safety 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 Safety Module to cover the deficit by selling deposited AAVE. This is a way for the system to prevent losses and strengthen the capital contained within the lending protocol.

Aside from having a use case as collateral and capital protection, AAVE utility is also related to governance. AAVE holders can propose and vote on changes, which can affect the system parameters and Safety Module. In this governance system, one AAVE is equal to one vote.

How Is the Aave Network Secured?

The Aave network is secured through the Aave protocol which is regularly audited and improved to maintain top standard security for lenders and borrowers using the platform. Loans are secured through collateral as borrowers need to deposit collateral in order to get a loan. The overall security is improved with overcollateralization as borrowers need to deposit a greater amount of collateral than the amount they are taking as a loan.

Pools are hosted on non-custodial smart contracts on the Ethereum network, so an additional layer of security is granted through security updates on Ethereum.

How to Use Aave

Aave can be used as collateral for taking loans and for paying loan fees. The token is also used by the Aave community to propose and vote on changes concerning the system and the Aave protocol. One AAVE coin is equal to one vote in the governance system so people with more AAVE have more voting power.

Aave is also used to secure the capital in the system as there are reserves in the Safety Module that are sold in case of a lack of capital in the system. Additionally, you can use AAVE as a way to make a profit by trading. AAVE price is subject to frequent changes, and traders can earn profits based on the difference between the buy and sell price.

How to Choose an Aave Wallet

Aave is an ERC-20 type token and can therefore be stored in any wallet that supports ETH and ERC-20 tokens created on Ethereum. There are plenty of options to safely store your Aave funds, so holders can choose from hardware, desktop, mobile or browser-based wallets.

Hardware wallets or cold wallets like Ledger or Trezor provide the most secure option with offline storage and backup. However, these can involve a bit more of a learning curve and are a more expensive option. As such, they may be better suited to storing larger amounts of AAVE for more experienced users.

Software wallets provide another option and are free and easy to use. They are available to download as smartphone or desktop apps and can be custodial or non-custodial. With custodial wallets, the private keys are managed and backed up on your behalf by the service provider. Non-custodial wallets make use of secure elements on your device to store the private keys. While convenient, they are seen as less secure than hardware wallets and may be better suited to smaller amounts of AAVE or more novice users.

Online wallets or web wallets are also free and easy to use and accessible from multiple devices using a web browser. They are considered hot wallets and can be less secure than hardware or software alternatives, however. As you are likely trusting the platform to manage your AAVE, you should select a reputable service with a track record in security and custody. As such, they are most suited for holding smaller amounts or for more experienced frequent traders.

Kriptomat offers a secure storage solution, allowing you to both store and trade your AAVE tokens without hassle. Storing your AAVE with Kriptomat provides you with enterprise-grade security and user-friendly functionality.

Buying and selling AAVE, or exchanging it for any other cryptocurrency, is done in mere moments when you choose our secure platform as your storage solution.

Aave Mining and Staking

Aave holders can stake their AAVE balances in the Safety Module and earn rewards. Aave can also be staked in pools as loans where lenders can earn interest based on their staked deposits. The project is launching an Aave Mining Pool, which should increase liquidity for stablecoins and DeFi tokens.

Even though these mining pools are set to reward both lenders and borrowers for participation, the concept is not crypto mining in the traditional sense as is the case with Bitcoin. The system relies on stakers as the protocol is open and non-custodial.

Conclusion

Aave is an integral player in the sector of decentralized finance. The project is gaining value rapidly with new functions and unique features such as flash loans and liquidity mining for stablecoins and DeFi tokens. To create an open financial system that can function without custodians and with complete decentralization, Aave’s developers and community are working together to make the lending and borrowing of crypto assets accessible to everyone.

Aave FAQ

How to Buy Aave

You can easily buy Aave by setting up a buy order on the exchange of your choice. If you are wondering how to buy Aave and how to find a good exchange that supports Aave trading, you will be thrilled to know that Kriptomat exchange supports Aave for buying and selling.

How to Sell Aave

You can easily sell Aave similarly to how you buy it. If you already own AAVE and hold it in a Kriptomat exchange wallet, you can easily sell it by navigating the interface and choosing your desired payment option.

Aave Price

Aave is volatile like other crypto assets, which is why Aave’s price is subject to frequent changes and is in constant flux. Its value is influenced by a lot of the traditional factors such as project news and developments, market sentiment, the flow of cryptocurrency on exchanges, and the economy in general. In addition to these things, the value of AAVE is also affected by the total value locked in the protocol, as tokens are burned whenever protocol fees are incurred.

The current Aave (AAVE) price is EUR.

The 24-hour trading volume of AAVE is EUR. AAVE is currently ranked of all cryptocurrencies by total market cap, with a market cap of EUR. It has a circulating supply of AAVE.

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