What is the cryptocurrency known as Aave? Originally ETHLend, one of the first crypto lending platforms in 2017, Aave is the rebranded and updated version of this project on the Ethereum blockchain. This cryptocurrency is carrying the torch of its predecessor as an ever-growing leader in the decentralized finance space.
Known initially as ETHLend (in reference to being deployed on the Ethereum blockchain), Aave (pronounced ‘ah-veh’) is one of the prominent players in the niche crypto lending space. They were one of the first in 2017 that made lending, borrowing, and earning interest on digital currencies a possibility, which is still occurring efficiently even today.
At the time of writing, according to CoinMarketCap, Aave is the 14th largest cryptocurrency with a market cap of roughly $5.9 billion and a per token value of about $448. These statistics are impressive in their own right as its price has leapfrogged by a staggering 1619% in three months already.
Aave is one of the most revolutionary digital currency projects in the market, prompting a deeper look into how it started, how it works from a primary user and technical perspective, and what makes it so valuable.
After a successful ICO (initial coin offering) worth around $16.2 million in November 2017, ETHLend came into being as an Ethereum-based or ERC20 token. The project is the brainchild of Swiss serial entrepreneur Stani Kulechov, who built ETHLend due to a lack of cryptocurrency-centric lending applications at the time.
It could be argued ETHLend was one of the early adopters in the soon-to-be growing DeFi (decentralized finance) realm, specifically a digital currency lending protocol not relying on formal credit and other compliance checks. It is now one of the largest in this sector, along with the likes of Uniswap and Maker.
In September 2018, the platform was renamed Aave (a Finnish word for ‘ghost,’ implying the venture’s goal of transparency) after the parent company of the same name, improving the lending protocol to a pooled one, allowing for greater liquidity, and more asset listings.
Furthermore, Aave differentiated itself in many ways, one of which being non-custodial, meaning that they do not hold users’ cryptocurrencies directly. The team behind the project has grown to about 29, with Stani Kulechov still at the helm as the CEO.
Up until October 2020, the coin was still using the ticker symbol, LEND (in reference to ETHLend), but changed to AAVE, which is the official launch of this particular token.
How does Aave work?
This platform is multi-faceted, though, at its core, Aave foremost describes itself as a ‘decentralized liquidity market protocol for lenders and borrowers.’
In simpler terms, users earn interest from their deposited holdings, which they borrow to others. They can also lend by putting up cryptocurrency collateral with reasonable interest rates (fixed and variable) and exceptionally low fees, all without the rigmarole of lengthy checks like in the traditional finance space.
Clients can lend and borrow in an intriguing array of 23 cryptocurrencies, which includes the likes of Chainlink, Tether, Binance Coin, and Maker, among many others.
Smart contracts hold the deposited funds in a liquidity pool, and since Aave is decentralized and open-source, developers can leverage this programmed logic to create an enriched third-party service or application on the network.
Aside from acting as a lending-borrowing and smart contracts platform, the Aave token also works as a standalone digital currency and can be utilized on the network to decide on the service’s governance, to which users can earn rewards through staking. As an incentive, using AAVE for borrowing or lending offers one a discount on fees.
Availability and supply
One can own AAVE at numerous cryptocurrency exchanges such as Binance, HBTC, and Huobi. When the network was known as ETHLend, there were 1.3 billion LEND tokens then. With the eventual rebranding, these coins were swapped into Aave tokens on a 1:100 ratio, resulting in 16 million AAVE (the maximum supply).
Three million of these coins are reserved for Aave’s network improvements under the governance of its community, while the rest is in the hands of users. At the time of writing, approximately 12.3 million AAVE is in circulation.
Perhaps one of the most unique and rarely seen products are ‘flash loans’ on Aave, which are currently only reserved for developers due to their coding complexity. These loans happen ‘in a flash’ and aren’t for conventional or off-chain long-term purposes.
‘Flash loans’ are revolutionary in being unlike conventional lending in the DeFi (decentralized finance) space, this option is entirely uncollateralized, provided that the loan returns within one transaction block (or within the time of a new Ethereum block forming, which is presently around 13 seconds).
The purpose of such lending is mainly for arbitrage, self-liquidation, and swapping collateral. Again, using smart contracts, developers can borrow Ethereum or any ERC20 standard without any collateral. If the loan is not returned (along with the associated 0.09% fee), the entire transaction reverses.
Aave’s blockchain lies on top of Ethereum’s, meaning it follows much of its standards in block creation. Although we were not able to find information on how many LEND tokens are made daily, based on how much ETH (Ether) forms, a safe rough estimate would be at least 3,000 new tokens.
What makes Aave valuable?
We can consider Aave as the lending and borrowing solution for the cash-poor and crypto-rich. As it has been for several decades, at least, unsecured loans are not without credit checks and other lengthy verification.
Although loans using crypto are secured or collateralized, the process is significantly faster, costs less, and allows for the quick obtaining of spendable funds. It’s a win-win because borrowers can earn passively from their cryptocurrencies, while lenders receive access to loans.
Aave was one of the first of several cryptocurrencies exemplifying the beautiful use of smart contracts on Ethereum. Consequently, Aave is one of the best examples of how decentralized finance should and will continue to work in the current society using this technology on the blockchain.
The purpose of any decentralized finance form like Aave is to permit a quick, cost-effective, trustless, transparent, and decentralized financial ecosystem attributes that are largely absent in the traditional finance environment.
As we’ve observed in the information above, Aave is planning to continue thriving in the ever-growing DeFi movement, which is becoming increasingly important in the further adoption of cryptocurrencies and blockchain.
One recently implemented update is Aave V2 that includes some tweaks to the existing collateral and loan repayment system. A possible future development may be the ability for ordinary users (not exclusively developers as it is currently) to take advantage of a function like ‘flash loans,’ though over a slightly longer period.
Overall, Aave is one project serious investors and enthusiasts alike should keep a regular eye on.