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TL;DR
AAVE is the native governance token of the Aave protocol. Holders of the Ethereum-based cryptocurrency can discuss and vote on proposals that affect the direction of the project.
Due to Aave being one of the leading decentralized finance protocols, the AAVE token is one of the largest DeFi coins by market cap. Ethereum investors can easily borrow and lend their cryptocurrencies in a decentralized manner through Aave.
Introduction
Core to any modern financial ecosystem are mediums through which individuals can borrow and lend their assets. Borrowing allows one to leverage their capital to accomplish tasks, while lending allows one to earn a regular and safe return on their otherwise-idle capital.
Cryptocurrency developers have acknowledged the need for such services, launching the so-called money markets. Aave is one of the biggest and most successful of these marketplaces.
What is Aave?
Aave is an Ethereum-based money market where users can borrow and lend a wide variety of digital assets, from stablecoins to altcoins. The Aave protocol is governed by AAVE holders.
It will be hard to understand what the AAVE token is without understanding the underlying Aave protocol, so let's dive in.
How Aave works
Aave is an algorithmic money market, meaning loans are obtained from a pool instead of being individually matched to a lender.
The interest rate charged is dependent on the "utilization rate" of the assets in a pool. If nearly all assets in a pool are used, the interest rate is high to entice liquidity providers to deposit more capital. If nearly no assets in a pool are used, the interest rate charged is low to entice borrowing.
Aave also allows users to take out loans in a different cryptocurrency than they deposited. For instance, a user may deposit Ethereum (ETH), then withdraw stablecoins to deposit into Yearn.finance (YFI) to earn a regular yield.
Like ETHLend, all loans are overcollateralized. This means that if one wanted to borrow $100 worth of cryptocurrency through Aave, they would need to deposit more than that amount.
Due to the volatility of cryptocurrencies, Aave includes a liquidation process. If the collateral you provide falls under the collateralization ratio specified by the protocol, your collateral may be liquidated. Note that a fee is charged in case of liquidations. Make sure you understand the risks of depositing funds into Aave before posting collateral.
AAVE is the native governance token of the Aave protocol. Holders of the Ethereum-based cryptocurrency can discuss and vote on proposals that affect the direction of the project.
Due to Aave being one of the leading decentralized finance protocols, the AAVE token is one of the largest DeFi coins by market cap. Ethereum investors can easily borrow and lend their cryptocurrencies in a decentralized manner through Aave.
Introduction
Core to any modern financial ecosystem are mediums through which individuals can borrow and lend their assets. Borrowing allows one to leverage their capital to accomplish tasks, while lending allows one to earn a regular and safe return on their otherwise-idle capital.
Cryptocurrency developers have acknowledged the need for such services, launching the so-called money markets. Aave is one of the biggest and most successful of these marketplaces.
What is Aave?
Aave is an Ethereum-based money market where users can borrow and lend a wide variety of digital assets, from stablecoins to altcoins. The Aave protocol is governed by AAVE holders.
It will be hard to understand what the AAVE token is without understanding the underlying Aave protocol, so let's dive in.
How Aave works
Aave is an algorithmic money market, meaning loans are obtained from a pool instead of being individually matched to a lender.
The interest rate charged is dependent on the "utilization rate" of the assets in a pool. If nearly all assets in a pool are used, the interest rate is high to entice liquidity providers to deposit more capital. If nearly no assets in a pool are used, the interest rate charged is low to entice borrowing.
Aave also allows users to take out loans in a different cryptocurrency than they deposited. For instance, a user may deposit Ethereum (ETH), then withdraw stablecoins to deposit into Yearn.finance (YFI) to earn a regular yield.
Like ETHLend, all loans are overcollateralized. This means that if one wanted to borrow $100 worth of cryptocurrency through Aave, they would need to deposit more than that amount.
Due to the volatility of cryptocurrencies, Aave includes a liquidation process. If the collateral you provide falls under the collateralization ratio specified by the protocol, your collateral may be liquidated. Note that a fee is charged in case of liquidations. Make sure you understand the risks of depositing funds into Aave before posting collateral.