WTF is AAVE?
The Aave Defi Protocol is designed to offer an Ethereum-based cryptocurrency that allows for seamless voting when it comes to specific projects. This can include minor and major decisions that are then powered using AAVE tokens.
The purpose behind this network is to create an unbiased governance solution. It is decentralized and uses the AAVE token as a way to manage the network. This is noted for being one of the largest DeFi tokens on the market right now when it comes to its market capitalization. Investors can quickly borrow and/or lend tokens using the platform making it easy to do everything seamlessly.
This is a money market that is great for those who are looking to process a long list of digital assets. This can include anything such as altcoins and/or stablecoins to name a few. Being able to put the assets through the network is great as it ensures everything is clear-cut and there is no shady business being done during the transactions. This is where the Aave DeFi Protocol stands out as a legitimate solution.
This cryptocurrency started to come to fruition in 2017 when it was created as a network known as ETHLend. It was created by a team that was led by a man named Stani Kulechov to make lending a breeze through blockchain technology. It was a way to make sure users also had the opportunity to play a role in how they were running a network and that was only possible by putting forward reasonable loan requests that would go through the system efficiently without hurdles.
At the time, ETHLend was a great idea and it was using LEND as its token. However, it starts to lose traction on the open market because of the overarching bear market in 2018 as all cryptocurrencies lost their peak value. This led to there not being enough liquidity to keep things running the way they need to be.
As the elongated and unstable bear market continued, the ETHLend team began to reshape its approach to the market and what it would continue to do with its project. This included setting up what is now known as the Aave DeFI Protocol.
Why Is Aave Exciting?
What makes this such a unique option for those who are looking to find a world-class network to participate in? Aave DeFi Protocol is a unique powerhouse for several reasons and it is a concept that was already catching on in 2017 with ETHLend.
The premise behind this is to make it easier for the average Ethereum user to get crypto loans without having to go through multiple hoops to do so.
The reason this works well has to do with its algorithm. The loans that are coming through will come from a pool rather than being processed by a single lender.
This is great because it makes it easier to manage an interest rate that is spread throughout the network known as a utilization rate. This is a rate that is set for using the assets that are in the pool. All of the assets in the pool are used and this makes it ideal for those who are getting the interest rate from having their funds in the pool.
Aave is all about allowing users to take out loans with a wide array of cryptocurrencies. This is great because a user may want to put in ETH but start to withdraw a stablecoin. This is possible to do so as you can also use the stablecoin for something else such as picking up another cryptocurrency.
The overall setup with a platform such as this is to use overcollateralization. The idea behind this is when a person borrows $1,000 in cryptocurrency with the platform, they are going to have to put in more money in another currency than that particular amount.
There is also a liquidation process that comes along with this project. This means anytime your collateral goes down under the collateralization ratio, you are going to be liquidated. There is a fee that comes with the liquidation that you are going to have to pay too. This is why any user that is moving forward with the network is going to be aware of the risk they are getting into.
Aave's Token & Governance Model
AAVE is the name of the token that is used by the network.
The idea is to make sure the protocol is backed up as the funds are going through. All of the tokens that are used are staked through the Safety Module and it is a way to make sure all Aave liquidity providers are fully protected when the network is functioning.
It is important to note all token holders can stake their AAVE without having to worry about something going wrong as the network works with a pool of tokens. This is ideal for those who are simply looking to stake for rewards and want to keep the network going for long-term success.
There is a backup in place when it comes to any potential shortfall along the way. This has to do with over 30% of the tokens being set up by the team for these types of situations.
The team has also taken the time to explicitly state how they go about managing debts. This includes any type of issuance event being put through a Recovery Issuance protocol, which means the extra AAVE tokens are drawn from that were set aside beforehand. This covers the deficit and acts as a safety net.
This is a mechanism that is great for those who are staking their tokens. It makes it lead to a higher reward for those who are willing to take on the risk because of the higher yield.
The SI rewards tend to change over time and this is based on the rate of the network at the time. This can change based on a governance vote.
It is important to break down how the tokens are split up by the team.
This includes having 300 million tokens set up aside in a Development Fund for the team. 80% of the tokens were locked after the initial distribution, 60% would be locked after 6 months, 40% after 12 months, 20% after 18 months, and 0% after 24 months.
It is a structured way to manage the treasury.
Who Is On The Team?
It all starts at the top with Stani Kulechov. He is the CEO and was the man that took the time to develop a team that would create ETHLend.
While the name changed, he also had Jordan Lazaro Gustave alongside as his COO. This made it easier to migrate from ETHLend to AAVE DeFI Protocol as they have done so now. They are a team that has been around for a long time and have quite ab it of experience when it comes to blockchains.
It is this expertise that has led them to become quite popular among the experts at what they do and how they go about doing it.
They have also welcomed several investors into the mix including Standard Crypto, ParaFI Capital, Three Arrows Capital, and Blockchain Capital to name a few.
This shows they are a team that has developed well over the years and has the confidence of those who are trusting them to deliver a great network over the long haul.
How To Participate In The Network?
For those who are thinking about getting into this network and believe it is going to be a big part of the future, it's essential to understand all of the options that are available to you.
You can get these AAVE tokens from a wide array of exchanges.
These are available in places such as Huobi and Binance for those who want to begin the right way. Just get your funds in and transfer them over for AAVE tokens. Once you do this, you can store them in any type of wallet that supports AAVE tokens.
For those who want to take it a step forward, you can also set it up for staking purposes.
This can be done through Aave's native dashboard where you can go to the staking portal and begin staking the tokens. This will ensure all of the staking rewards also come straight to your account as soon as the staking begins.
It's important to note for those who are going down this path, you are going to have to wait 10 days anytime you don't want to stake the tokens any longer. This is done to make sure a large amount doesn't drop out of the network when many tokens are unstaked at once. This is known as a cooldown period and is built into the network's mechanism to prevent funding issues.
This shows the level of depth that has gone into creating the blockchain and making sure it is done in a way where everyone gets to take advantage of what it has to offer.