The AAVE token is the backbone of the Aave ecosystem, enabling community governance and incentivization. AAVE is an ERC-20 utility token required for certain activities on the protocol. Aave doesn’t just operate on Ethereum – it’s implemented across over 10 different blockchain networks.
What Is Aave (AAVE)?
- Namely, LEND holders could not control the direction the Aave protocol was heading in.
- Its contribution to the overall growth of decentralized finance adoption and awareness is noteworthy.
- Deposits into the module are incentivized with a regular yield paid in AAVE.
- The PoW consensus mechanism is responsible for driving the competition for faster and more powerful computational processing power.
- That means using Aave, you can now participate in lending or borrowing protocols on chains like Solana or Avalanche.
- African American Vernacular English is also known as Black English or Black Vernacular English (and historically as “Ebonics,” although we’ll get to that term later).
If there’s still not enough liquidity after collateral is liquidated, Aave has a failsafe, known as the Safety Module. If the system needs an injection of capital, it will liquidate the AAVE tokens. Aave also provides pools for real-world assets, like real estate, cargo and freight invoices, and payment advances. For such pools, a partner company called Centrifuge helps brick-and-mortar businesses tokenize aspects of their operations. Once tokenized, investors can purchase (or hold as collateral) these tokens, which behave similar to bonds and earn a yield on their holdings. Thus, these assets can be used as collateral for real-world businesses to borrow cash.
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This interoperability lets users access Aave’s services on various chains. Stakers help safeguard the protocol and earn attractive yields up to 10% on their holdings. However, staked tokens are locked for at least 7 days before they can be withdrawn.
AAVE Token Price
In 2020, LEND was replaced with AAVE coins, with every 100 LEND being converted to 1 AAVE, resulting in 16 million coins extant. This was an issue as Aave garnered an increasing amount of liquidity and its users couldn’t enact change on the protocol. Then, it was proposed that LEND would be transitioned to a new coin called AAVE at a 100 LEND to one AAVE ratio. Each borrower on Aave also has a health factor that represents how safe their collateral is against the borrowed funds.
Any interest you earn by supplying funds helps offset the interest rate you accumulate by borrowing. There’s no fixed term, so you can withdraw your money plus interest anytime. To borrow on Aave, you must put up collateral worth more than the loan amount. The collateral can be crypto or even real-world assets like invoices. You can then borrow assets including stablecoins, with interest rates starting around 3-5%. Aave switched from an order-book system to automated pool-based lending and added key features like flash loans.
That means they’re increasing the amount of crypto that could potentially be borrowed. Collateral is important for crypto loans, as most crypto loans (except What Is Aave for flash loans) often need to be overcollateralized. Aave is the top DeFi lending protocol with more than $4 billion in the total value locked.
What Is Aave? Inside the DeFi Lending Protocol
The Two Components of AAVE
