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What Is Aave?

Aave is a decentralized, non-custodial lending and borrowing protocol and one of the foundational pillars of decentralized finance (DeFi). Originally launched as ETHLend in 2017 by Stani Kulechov and rebranded to Aave (Finnish for "ghost") in 2020, the protocol allows users to supply crypto assets to earn interest or borrow assets against collateral, all without intermediaries.

Aave works through liquidity pools. Suppliers deposit their crypto assets into smart contract pools and receive aTokens in return, which represent their deposit and continuously accrue interest. For example, depositing DAI yields aDAI, which increases in balance over time. Borrowers can then take out loans from these pools by providing other crypto assets as collateral, paying interest to the suppliers.

The protocol has introduced several innovations to DeFi lending:

  • Flash loans: Aave pioneered flash loans, which allow users to borrow any amount of assets without collateral, as long as the loan is repaid within the same transaction. These are used for arbitrage, liquidations, and collateral swaps.
  • Variable and stable rates: Borrowers can choose between variable interest rates (which fluctuate with market demand) and stable rates (which provide predictability).
  • Rate switching: Borrowers can switch between variable and stable rates at any time to optimize their borrowing costs.
  • Multi-collateral: Users can supply multiple assets as collateral and borrow multiple assets simultaneously.
  • Efficiency mode (E-Mode): Allows higher borrowing power when supplying and borrowing correlated assets (e.g., stablecoins against stablecoins).

Aave has evolved through several major versions. Aave v3, the current version, introduced features like portals (cross-chain liquidity), efficiency mode, isolation mode for new assets, and improved risk management. Aave is deployed on Ethereum, Arbitrum, Optimism, Polygon, Avalanche, Base, BNB Chain, and several other networks, securing tens of billions of dollars in total value locked (TVL) across all deployments.

AAVE is the governance token of the protocol. AAVE holders can vote on proposals that determine protocol parameters such as supported assets, risk parameters, fee structures, and treasury management. AAVE can also be staked in the Safety Module, an insurance mechanism that protects the protocol against shortfall events, earning stakers additional rewards.

Getting Started With Aave

Using Aave to supply or borrow assets:

  1. Step 1: Connect an Ethereum-compatible wallet (MetaMask, Coinbase Wallet, etc.) to the Aave web app.
  2. Step 2: Choose a network (Ethereum, Arbitrum, Polygon, etc.) based on your preference for fees and available assets.
  3. Step 3: To earn interest, supply assets to the protocol. You will receive aTokens that accrue interest automatically.
  4. Step 4: To borrow, ensure you have supplied collateral, then select an asset to borrow. Monitor your health factor to avoid liquidation.

The health factor is a crucial metric in Aave. It represents the safety of your borrowed position relative to your collateral. If it drops below 1, your position can be liquidated. Keep the health factor well above 1 to maintain a safe position.

How to Get an Aave Wallet?

AAVE is an ERC-20 token that can be stored in any Ethereum-compatible wallet:

MetaMask

MetaMask is the most popular wallet for interacting with Aave. It supports all networks where Aave is deployed and allows direct interaction with the Aave web app.

Coinbase Wallet

Coinbase Wallet (the self-custody wallet) supports AAVE and provides easy access to the Aave protocol through its built-in dApp browser.

Hardware Wallets

For maximum security on larger positions, Ledger and Trezor hardware wallets support AAVE. They can be connected through MetaMask to interact with the Aave protocol while keeping keys offline.

Aave Resources

How to Buy AAVE?

AAVE is widely available on major exchanges:

Centralized Exchanges

AAVE can be purchased on Coinbase, Binance, Kraken, Gemini, and most major exchanges. Fiat-to-AAVE trading pairs and crypto-to-AAVE pairs are widely available.

Decentralized Exchanges

AAVE can be purchased on Uniswap, SushiSwap, and other DEXs by swapping ETH or other tokens.

After purchasing, AAVE can be held for governance participation, staked in the Safety Module for rewards, or used as collateral within the Aave protocol itself.

Latest Aave News

Aave remains the dominant DeFi lending protocol with continued expansion to new chains and growing TVL. Key developments include Aave v4 planning, the GHO stablecoin (Aave's native overcollateralized stablecoin), and increasing institutional adoption of the protocol for on-chain lending and borrowing.