What Is AAVE (AAVE) How It Works & Where To Buy It?

AAVE is best described as the largest lending protocol in the world by market capitalization. AAVE, formerly known as ETHLend, allows users to borrow and lend on its innovative platform.

The implementation of smart contracts on the platform means that actions are initiated and executed without the need for any institution to act as an intermediary.

AAVE has become the largest lending protocol with a market cap of $1,92 billion (47th largest overall market cap).

How AAVE Works

The AAVE platform allows users to participate in the lending and borrowing of crypto assets. Every digital asset has a liquidity pool that users can either supply (lend their crypto assets to the pool) or borrow from the liquidity pool.

AAVE users can participate in a multitude of other features on the platform including staking, yield farming, and other DeFi products.

AAVE facilitates borrowing and lending through the use of two tokens – aTokens that are distributed to borrowers and the AAVE token, which is the protocols native token. There are also certain advantages for users borrowing AAVE tokens, or using AAVE tokens as collateral.

Some of these benefits include lower interest rates, and when AAVE tokens are used as collateral, users receive a discount on fees. When users borrow AAVE they don’t get charged a fee if it’s taken out in the denominated token.

The AAVE protocol manages to facilitate the same borrowing and lending systems seen in the traditional financial system but all actions are executed through smart contracts. This in turn makes the platform decentralized and devoid of intermediaries.

AAVE holders are also incentivized in other forms such as staking rewards and various incentives that change periodically.

AAVE is one of the most popular protocols where an individual can easily lend cryptocurrency, receive flash loans (uncollateralized loans), and take advantage of digital assets available on crypto markets.

What Is AAVE Used For?

AAVE is typically used for borrowing or lending. Borrowers receive funds in aTokens (pegged to the value of the collateral they provide) and lenders receive interest on tokens they supply to pools.

The platform incentivizes the use of the protocol’s native token which means AAVE users can earn a variety of rewards for using the AAVE token when participating in the lending protocol.

Transaction fees are paid in AAVE and the governance of the AAVE protocol is directly correlated to AAVE token holders. Token holders receive voting rights, proportionate to the number of tokens they hold.

Additionally, AAVE tokens are frequently traded on multiple centralized and decentralized exchanges. The frequent price fluctuations of cryptocurrencies make it favorable to swing or arbitrage trade certain cryptocurrencies such as AAVE.

Where To Buy AAVE

AAVE tokens can be purchased on most of the popular cryptocurrency exchanges. The AAVE token experienced its most significant trading volumes in May 2021, when the 24-hour volumes surged to more than $2 billion.

Five of the most popular crypto exchanges to buy and trade on are:

1. OKX
2. Coinmama
3. KuCoin
4. HTX

Many people prefer to keep their tokens off exchange in either digital or hardware wallets. A lot of people consider this to be the safest option because most exchanges experience hacks from time to time

Trust Wallet is one of the most popular wallets and it’s used by hundreds of thousands of people around the world.

About AAVE

How long has AAVE existed?

AAVE is a for-profit Swiss-based company that was created by Stani Kulechov in 2017. Kulechov is a prominent figure in the crypto space and started building AAVE while still studying at the University of Helsinki.

The AAVE ICO in 2017 raised $16 million and was highly anticipated by many in the crypto space.

The AAVE cryptocurrency has seen significant price fluctuations since its listing, AAVE’s price reached an all-time high of $632 on the 18th of May, 2021.

What’s controversial about AAVE?

There is a multitude of new projects constantly entering the crypto space. Unfortunately, many of these new projects aren’t as credible and transparent as they claim to be. There is a general lack of legal framework surrounding crypto, which is both a good and a bad thing. It’s positive because the aim is to achieve decentralization – it’s negative because many projects exploit this and create scam projects that cost retail investors large amounts of money.

The most important rule is to practice caution before investing in any project. Do a substantial amount of research on a project, its history, its founders, and any other important factors involving the project.

To make an informed choice, let’s take a look at the two biggest controversies surrounding AAVE below:

• Flash loan attacks – AAVE has the option for users to take out flash loans. These are loans that need to be taken and paid back by the time a new block is created (13 seconds). These loans don’t require any collateral and are only subject to 0.09% interest.For obvious reasons, these are lightning-fast and very controversial loans that are made available to experienced traders seeking to take advantage of volatility in the market. However, the fact that no collateral is required for flash loans is exactly what makes them so risky. Many significant developers, including Andre Cronje (Yearn Finance and Fantom developer), have raised concerns about how AAVE is susceptible to ”11 figure exploits”.
• Incentives Aren’t Worthwhile – The lending protocol is reliant on the supply and demand for digital assets. However, the rates lenders receive are arguably unappealing, or at least too unappealing to attract a major influx of lenders.Many other DeFi platforms offer users much higher rates when they stake tokens or participate in liquidity pools. The AAVE team needs to consider the developments other platforms like Pancakeswap and Osmosis are making if they aim to remain competitive.

How many AAVE tokens are there?

At the time of writing, AAVE has a circulating supply of 13,703,677.56 AAVE (86% of the total supply).

The total supply of AAVE is 16,000,000.

Can AAVE be mined?

AAVE is not a mineable cryptocurrency. This makes it different from cryptocurrencies like Bitcoin and Ethereum which are mineable because they use a proof of work consensus mechanism.

The most popular way to earn interest from your AAVE tokens is by participating in liquidity provision or by staking AAVE.

Some centralized exchanges also offer staking rewards for users who vest their AAVE tokens for a duration – which is typically a minimum of 30 days.

What is the market cap of AAVE?

To calculate the market cap of any cryptocurrency, you can use the formula below:

total amount of coins in circulation x current market price of the coin.

AAVE Market Cap = 13,703,677.56 AAVE x $140,63 = $1,93 billion (47th largest cryptocurrency by market cap).

Biggest Competitors Of AAVE

AAVE has cemented its spot as one of the most credible and most-used lending protocols on the market. The protocol has been around for a few years now and has recently incorporated cross-chain functionality; its v3 is said to be a game-changer.

Although the protocol has seen much success since its inception, it is not the only project in the space that is providing users with an easy-to-use, secure and affordable platform.

AAVE’s biggest competitors are:

• Maker
• Compound

What Are The Future Plans Of AAVE

AAVE protocol has announced that cross-chain lending is going to be a major part of its new and improved v3. The functionality will facilitate lending across multiple chains, in an unbiased and decentralized manner.

These advancements positions AAVE as an innovative lending protocol that continues to build useful, and easy-to-use DeFi products.

Going forward, the protocol aims to grow its available DeFi products, provide more utility for its native token and grow the number of users participating in the protocol.

Pros And Cons Of AAVE

Pros:

• Leading lending protocol – AAVE is the leading lending protocol and has a TVL (total value locked) of more than $11 billion. This is a substantial amount and is indicative of how many people trust the platform with their crypto assets.
• Cross-chain lending – AAVE’s v3 version is going to allow the lending of assets across multiple chains. This is distinctively different from traditional lenders that require sensitive information before approving loans – AAVE allows any user that can provide sufficient collateral, to take out a loan.
• Partnerships – AAVE is actively pursuing partnerships with organizations that understand and align with the AAVE team’s vision for the project. One of the most notable partnerships includes AAVE’s partnership with WIREX, a wallet provider.

Cons:

• Competition – AAVE has definitely become a popular lending protocol used by hundreds of thousands of people. The platform continues to garner more users and higher trading volumes as it spreads its reach across multiple chains.However, the competition among lending protocols is becoming tighter as each platform aims to take the top spot. At the current moment, AAVE is the leading lending protocol by market cap but not by TVL. The leading TVL of any lending protocol belongs to Anchor Protocol which has a TVL of more than $17 billion.
• Flash loan attacks – Many top developers are concerned that AAVE is susceptible to flash loan attacks. The protocol will also need to ramp up security once its cross-chain lending garners more traction in the next few months.