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Aave Crypto Review

May 20, 2021

What is Aave?

In short, Aave is a blockchain platform for lending cryptocurrencies. The name comes from the Finnish word for “ghost,” representing the idea of a transparent platform for the future of DeFi. People that are in the niche may find the platform familiar, and they would be right. Before DeFi reached the popularity it has today, Aave was known as ETHLend. The principle behind it was similar to today’s Aave, but it only worked for small-time users. Once the company was ready to play in the big league, they rebranded themselves.

In 2017 ETHLend was launched as a decentralized lending platform, while Aave was launched at the beginning of 2020, offering an overhauled look with additional features striving to improve DeFi. The most significant change was the implementation of the Aave protocol. In less than a year, the team managed to release a newer version. At the beginning of December, Aave V2.0 was released, bringing several improvements over the older version.

How does Aave work?

As we mentioned, Aave is a lending platform for cryptocurrencies. There are two sides to the process including the lenders and the borrowers.

The first party deposits into a pool of cryptos, and they are the lenders. Since Aave supports multiple cryptocurrencies, each one goes in a separate pool. A small percentage of the pool is put in a reserve. It reduces the risk of volatility on the hedge, but it also allows the lenders to withdraw the deposited cryptos.

On the other side of the platform are the borrowers. They can ask for a crypto lend and will be able to achieve it really fast. Aave doesn’t rely on Anti-Money Laundering or Know Your Customer (AML and KYC), meaning that the process is carried out almost instantly. It also means that users that want to borrow are not required to submit tons of documentation to be approved.

Aave currently supports trading and lending of 23 cryptocurrencies, including Ether, DAI, Yarn Finance, Kyber, and of course, Aave’s own coin aTokens.

Aave aTokens

To keep things regulated, Aave has introduced aTokens or Aave interest-bearing tokens. When you deposit funds to the pool, you get aTokens in a 1:1 value of the asset you are depositing. They act as a replacement for the deposited cryptocurrencies, and they get burned the moment they get redeemed.

The advantage of this process is that the aToken holders can get an interest in their deposited assets. If you have deposited some assets and got your aTokens, you will be able to see the increase in your balance. Everything happens almost instantly, so you won’t have to wait for anything. Also, since they are technically coins, you have the option to transfer and trade them within the platform.

Even though this is a relatively complex platform, the features of Aave are not as extensive as you may think. The entire system has two parts: lending and trading.

Aave features

Flash Loans

Flash loans are exactly what they sound like – loans that need to be returned in a short amount of time. This feature is the one that will bring the most change in Defi. Essentially, you can take out a quick loan from some of the pools on the network. The only condition is to return the assets before the transaction ends. In other words, you have 12 seconds to return the assets. If the requirement is not fulfilled, all transactions that happened in the meantime are canceled. With that, the loaned assets are returned to the pool. To keep things fair, each flash loan comes with a 0.3% fee.

As things stand today, getting a loan and returning it in 12 seconds is not as easy as it sounds, and it doesn’t have too many applications. In the long run, there are a few. Getting a quick loan means that you can use those assets on another platform and make a profit. Basically, you will be using someone else’s assets to make a profit and only pay a fee less than 1% of the value.

Rate switching

The second significant feature in Aave is rate switching. Unlike other lending platforms where you are limited to go with either a fixed or variable rate, Aave enables you to choose which one you want to go for. Popular assets work better with the fixed rates, while the variable ones are usually used for volatile assets.

Lend token

As with every blockchain platform, Aave has its own token. Initially, the coin was released during ETHLand’s ICO in 2017. The ERC-20 token was going for 1.6 cents during the coin offering, where the company managed to sell over 1 billion tokens. The total number on the network was 1.3 billion. They managed to raise $16 million, where a quarter of the tokens were left for the team behind the project.

Conclusion

Looking at Aave strictly as a lending platform, we don’t see anything specific. While it was among the first ones to start the trend and get more and more users, things are not progressing as we’d like to see. The problem with that is not in the platform, but rather with the overall crypto finance space trends.

If we take into consideration that cryptocurrencies are still not as regulated as fiat, it is understandable why people are reluctant to get on board. Despite that, Aave is a lending platform with a lot of potential.

In less than a year of the rebrand, Aave got its second version upgrade, bringing many new features. Many people still don’t find flash loans useful due to the time it takes to return the funds. While that is true, the feature has a future once people start to use it more.

Overall, Aave is a revolutionary platform that has a considerable potential to change DeFi.

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