Decentralized finance protocols and stable coins are quickly becoming the number one target for regulators around the world and that means only the most decentralized and innovative will survive. AAVE has been raising the bar for decentralization and innovation since it begin and now it's looking to raise the bar even higher with it's decentralized social media protocol and it's up coming stablecoin.in this post I'll be explaining what Aave is and how it works,bring you up to speed with some of its most important update and tell you why Aave is on track to become one of the top ten cryptocurrency.
If you're unfamiliar with Aave here is what you need to know.
Aave is a decentralized finance protocol that was founded in 2017 by stani kolechov. Back then the project was known as ethland and it rebranded to aave in 2018. Aave was built by a software company based in London called Aave limited where stani currently serves as ceo. In contrast to most crypto projects, Aave development is not coordinated by a non-profit and this is basically because Aave is community driven rather than company driven. Aave raised over $16 million in a 2017 ICO and has since raised an additional $33 million across various funding rounds from various crypto venture capitalists. The Aave protocol that exist today was released in early 2020 and it has seen numerous improvements since that time namely, the Aave V2 release at the end of 2020 and the Aave V3 release earlier this year.
Although Aave initially launched on Ethereum, the protocol has since expanded to half a dozen other Blockchain including avalanche, polygon POS chain, Ethereum layer 2's arbitraum and optimism, fantom and harmony. It should come as no surprise then that Aave is currently the second largest defi protocol by total locked value according to defi lama and continues to see around 10,000 monthly users according to dap radar. This is despite the crypto bear market mind you.
Aave's popularity boils down to the power of it's protocol which lets you borrow and lends cryptocurrency without KYC or a credit score or without timeline on loans and deposits.if you're wondering how this is possible,the answer is basic economics,user incentives and over collateralization. To borrow cryptocurrency on Aave you need to deposit a dollar amount of crypto that's worth more than the dollar amount of crypto you're trying to borrow, this is called over collateralized loan. The interest rate you pay on a crypto you borrow is determined by the supply of and demand for the token you're borrowing. In the protocol with a Lower supply of and higher demand for the token corresponding to a higher interest rate. A higher interest rate incentivises lenders tk deposit more if that token into the protocol.
Naturally the interest being on borrowed tokens goes to the lenders if those tokens and on Aave borrowers can even opt to pay a higher stable interest rate.
As I mentioned there's no time limit for loans but there's a catch, borrowers must always make sure that the dollar value of the crypto they use as collateral is worth more than the Crypto they borrowed plus the interest they owe on the crypto they borrowed. Aave staking reward is currently 7% per annum. The Aave token is also used to govern the Aave protocol which is about as decentralized as defi project can get.
