Aave is an open-source decentralized finance (DeFi) solution, functioning as a lending and borrowing protocol running on the Ethereum blockchain. Aave has a crypto-asset token under the same name — AAVE — used for various purposes within the Aave ecosystem.
Aave started out via an initial coin offering (ICO) held by ETHLend in 2017. Created by Stani Kulechov, ETHLend essentially aimed to provide borrowing and loaning capabilities by matching borrowers with lenders, and vice versa.
In 2018, however, Aave was created as a parent company for ETHLend, taking a different approach to borrowing and lending based on liquidity pools. Aave launched its platform in January 2020.
In October 2020, Aave conducted a token swap, exchanging LEND tokens (the asset previously associated with ETHLend) for new AAVE tokens, which serve a number of purposes in the Aave ecosystem, such as governance. The swap downsized the asset’s maximum token supply from approximately 1.3 billion LEND to 16 million AAVE. Tokenholders received 1 AAVE for every 100 LEND they swapped.
The Aave protocol is compatible with a broad number of different crypto tokens that run on the Ethereum blockchain. Borrowers send crypto assets as collateral to a pool within Aave’s ecosystem and receive a loan. They must send more crypto than they receive as a loan in order to protect against volatility. Additionally, borrowers pay interest.
In contrast, lenders send their assets to pools in Aave’s ecosystem and receive aTokens in return, which correspond to the asset they lent. The asset they receive has the same ticker as the asset they lend, except with the letter “a” in front of it. Each aToken represents one unit of the lent asset. These tokens earn interest, as they represent the loan, but users can also trade these tokens.
Interest is collected by the lender when they redeem their aTokens by withdrawing the original asset they lent, plus interest that was added in the form of the asset they lent. For example, if one loans 15 Ether (ETH), they get 15 aETH in return. When they redeem that aETH by withdrawing the initial lent ETH, it also comes back with interest earned in the form of additional ETH. Selling aTokens to someone else, however, gives the buyer the ability to cash in on the previous owner’s loan as well as any interest held in that capital.
The Aave platform also allows flash loans — a type of loan that needs no collateral but requires a fee and loan repayment within a short time window. The fee is paid to pool lenders.
Underpinned by the Ethereum blockchain, AAVE is an ERC-20 token, not a coin. The AAVE token price history can be seen in the AAVE price chart above. The AAVE-to-USD price live is also available above, given that the price of AAVE fluctuates.