The word Aave comes from Finnish and means ghost. The ghost name illustrates the goal of this protocol to be transparent and open in the DeFi (Decentralized Finance) space. Aave is an Ethereum-based “Decentralized Finance” platform that started as ETHLend (LEND). Their main proposition is to allow users to lend, borrow and benefit from fixed or variable interest rates in a decentralized space. The AAVE token was launched in October 2020. At that time investors had the possibility to migrate their “old” LEND tokens to AAVE 1: 100. The price of the latter has increased by 249.07% since its launch.
ETHLend was the name under which, in 2017, the AAVE project started. In fact, their launch responds to a successful ICO (Initial Coin Offering) that allowed them to raise 17 million dollars. With this financing, the project managed to move its platform forward and by the end of 2017, the LEND token, the heart of the platform, was launched. The idea of the project was simple: create a decentralized loan market. On the one hand, there were those who wanted to borrow, and on the other, those who lent cryptocurrencies in exchange for interest.
In AAVE, those who ask for loans have to put a guarantee collateral, to avoid defaults. A fairly flexible mechanism that caught the attention of many users. In addition, the platform offered loans with different types of collateral. All this flexibility made ETHLend a widely used platform in the crypto world, especially by traders who were looking for loans that would serve to leverage their positions and obtain better profits.
Another of the most striking points of AAVE is its ability to offer interest rates adjusted to needs. AAVE offers its users two interest rate options (stable or variable) and you can freely choose between them. In this way, the user can at all times choose the best interest for their loans, seeking the best possible position. Thanks to this function, AAVE has differentiated itself from other platforms in the sector and has also allowed great growth in this year 2020.
AAVE, being a loan protocol that uses cryptocurrency collateral, also has a series of safeguards to prevent the volatility of the markets from breaking the positive dynamics of the system, which is formed by:
▸Staking module
It is tasked with protecting the liquidity of the protocol amid a crash in cryptocurrency markets.
▸Auction module
It is activated in the middle of a deficit market to reconvert blocked tokens and keep losses to a minimum.
▸Backstop module
It contains the ETH and previously deposited stablecoins that have a priority position in the auction in the event of a deficit event.
Thanks to this operating scheme, AAVE guarantees that in the midst of bearish onslaught in the price of its pools’ tokens, liquidity providers can always maintain a positive position with respect to their invested tokens.
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