Aave is a DeFi lending protocol which enables users to lend and borrow cryptocurrencies, at a mixture of stable and variable interest rates.
In addition to the usual loan features seen in other protocols like Compound, Aave includes notable distinguishing features such as uncollateralized loans and “rate switching”.
The protocol is open-source and non-custodial, meaning that no third party is ever in control of user funds.
The native token of the Aave platform – LEND – provides holders with several advantages such as discounted fees and staking rewards.
Aave was originally launched as ETHLend, a lending platform which was founded in 2017 by Stani Kulechov.
The ETHLend ICO held in November 2017 raised $600,000 worth of Ether, in exchange for 1 billion LEND tokens.
ETHLend was rebranded to Aave in September 2018, with the intent to integrate Bitcoin interoperability and accompany the release of new platform features.
Flash loans are likely the most unique feature of the Aave protocol. Unlike the typical over-collateralized loan, Flash Loans require zero collateral to use!
Instead of guaranteeing repayment with collateral, Flash Loans simply rely on the timing of the loan’s repayment. As long as the loan is used and paid back in full within the same block it was issued, it is approved. On the other hand, if the loan is not paid back within the same block, the entire loan is cancelled.
Flash loans open the doors for safe and secure arbitrage opportunities, across the Ethereum DeFi ecosystem – all at virtually no cost to the user.
As with other lending platforms, Aave users can lend and borrow cryptocurrencies in a permissionless fashion. However, the interest rate structure with Aave is quite different.
Whereas other lending platforms tend to lock users into fixed or variable interest rates, Aave’s rate-switching function allows users to switch between two different types of rates. This allows them to get the best interest rate on their loans, by changing between “stable” and “variable” interest rates.
It should be noted that these stable rates are not fixed interest rates. Rather, they are a more stable form of variable interest rate, which is more constant and less susceptible to market fluctuations.