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What is Aave?
This is a decentralized money market that runs on the blockchain of Ethereum, enabling users to borrow and lend an array of cryptocurrency assets. Aave is different because of the several cryptos that users can borrow, and allowing lenders to earn income on the money they lend borrowers.
The history of Aave
This platform was launched in 2017. It’s the first decentralized Finance lending protocol and used to be a totally different name, which is ETHlend. Stani Kulechov, who is the founder of the firm, carefully eradicated technical barriers for anybody to use this advanced network. The crowd sale of Aave notably secured more than $16,000,000.
The passive income function of Aave is based on another type of token called the aToken. It is issued at a ratio of 1:1 upon assets deposited into the liquidity pool of Aave. They characterize aTokens depending on the deposited crypto and burned when it’s paid back: for instance, depositing DAI will result in aDAI being generated.
aTokens bear interests, which means that lenders will get an interest anytime they issue loans from the coin their assets are deposited. They accrue interest in real-time, then directly sent to the wallets of users.
Alongside facilitating loans in several cryptos, Aave also provides a flash loan service. These loans draw on the remaining liquidity in the pool to enable borrowers to take out loans without collateral then return that loan as a portion of the same transaction, and it attracts a fee of 0.09%.
The aim of flash loans is to enable borrowers to capitalize on the cryptocurrency market’s short-term financial opportunities. It leverages price differences with swift trading activity in the period needed to add one block to the chain. If a borrower doesn’t pay back the loan in the same block, they’ll revert the transaction and return the funds.
This platform has also added a rate switching service in order to address the crypto market’s volatility. Basically, rate switching enables borrowers to lock in their loans’ interest rates or decide to go with floating rates. This practically means that borrowers who feel the interest rate can rise as soon as they borrow from the liquidity pool can decide to get a fixed interest rate.
Uses of Aave
The design of Aave is for it to become a totally decentralized and secure ecosystem of lenders and borrowers, allowing users worldwide to assess it. Lenders can earn passive income as interests on their contributed assets to the liquidity pool.
Above its native decentralized finance use, Aave is open source, and that maximizes its functionality by allowing several third-party apps development on the network of Ethereum. Till today, Aave has collaborated with several developers that include:
Axie infinity: The partnership between Aave and this Ethereum-based game called “Axie Infinity” will allow players to earn Aave tokens via skillful gameplay.
Pixelcraft studios: Thus Singaporean Pixelcraft Studios has partnered with Aave to develop Aavegotchi. Aavegotchi is a game where players can earn Tamagotchi-style NFTs that the Aave protocol powers.
Balancer: The partnership between Aave and Balancer is to create the Balancer V2 Asset Manager. This application will enable interest to be earned in the Balancer liquidity pools’ unused assets via the Aave network. This Asset Manager will become the bridge responsible for facilitating inter-network transfers.
The future objectives of Aave include the aim of allowing anybody to create and deploy their money market on the blockchain of Ethereum. Aave released some parameters to make sure that market developers create their markets according to the Aave Risk Policies. The aim of Aave is to also finish the transition to a totally decentralized autonomous organization, which is a process involving the gradual network control ceding to the stakeholder community of Aave.