The following post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga.
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What is AAVE?
Aave is a decentralized finance (DeFi) protocol that is built on the Ethereum network. Aave allows users to lend and acquire cryptocurrency ranging from stablecoins to altcoins in a decentralized ecosystem. Users who use the Aave convention earn interest when they lend. Other users pay interest when they borrow funds on the platform.
The protocol uses a decentralized autonomous organization called a DAO. This means that the convention is operated and administered by individuals who hold and vote with AAVE tokens.
The protocol was founded in 2017 by Stani Kulechov and is based in Switzerland. AAVE was first known as ETHLend. During its ICO stage in 2017, the protocol raised $16.2 million for 1 billion units of LEND token (now AAVE). At the point when it began, the protocol tried to match borrowers and lenders together using a peer-to-peer system. It later changed to using pooling funds. In 2018, ETHLend changed its name to AAVE.
Over the last few years, AAVE has become a well-known and important protocol in the decentralized finance ecosystem. What makes Aave important to the DeFi sector?
Why is Aave So Important to Decentralized Finance?
Aave is an open-source, no custodial lending convention. Users can take part in the protocol as depositors or borrowers. To make transactions, lenders need to store their assets into liquidity pools and borrowers can get assets from the liquidity pool. Those who deposit their funds in the liquidity pool earn a passive income while doing so, while borrowers can borrow the desired amount in an overcollateralized or undercollateralized manner.
Back in the early days of DeFi, you had to wait for the "missing rib" if you wanted to borrow an asset. You could only borrow if you found someone willing to loan at an agreed price.
Rather than use the peer-to-peer lending format it did back then, Aave makes use of liquidity pools to allow clients to lend and borrow assets. Users deposit assets into liquidity pools that the protocol lends out to borrowers. Clients who store their tokens into the pool receive aTokens. Those who own aTokens (lenders) earn automated revenue.
To successfully borrow from the liquidity pools, one must lock up collateral that should be greater than the amount borrowed. Borrowers should keep up with the collateralization ratio. If in case, they don’t maintain this ratio, any other user can liquidate them.
There are a few things that give Aave an added advantage in the DeFi sector. For one, Aave offers a wide range of DeFi collateral types such as DAI, LINK, MANA, SNX, TUSD, USDT, BUSD, ZRX, KNC, and many others.
Additionally, Aave uses an algorithm to change the loan fee based on how high or low the demand and supply are. If the need to borrow is high, the liquidity reduces while the interest rate increases. However, Aave permits users to switch between stable and variable interest rates. This guarantees that users get the best interest rate for loans they receive.
Aave additionally permits clients to borrow funds instantly without compromising the security of the reserve pool. These are a few reasons why Aave is a thought leader in the DeFi sector today.
Why is the Aave Token Valuable?
The AAVE token is used primarily in the administration of the Aave software. Users on the platform use the AAVE token to vote on changes to the protocol. An AAVE holder can vote on interest rates for certain loans and how deposits can be managed.
The AAVE token increases in value due to its limited supply and ability to receive part of the cash flows that the protocol generates.
Aave keeps on flourishing in the DeFi sector as more parties become interested in the protocol. The protocol became the second DeFi protocol to hit $1 billion in total value locked and now secures upwards of $20 billion dollars in value.
There are more exciting features to be rolled out in the future for users such as native undercollateralized loans/credit delegation, improved borrow rates, and debt trading among others to push DeFi even further. As Aave continues to grow in use cases, investors will likely be happier and happier with performance.
If you want to learn how you can potentially invest and trade AAVE tax-free, head to www.iTrustCapital.com
The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. This content is for informational purposes only and not intended to be investing advice.
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