AAVE is a decentralized finance protocol that allows people to lend and borrow crypto. Lenders earn interest by depositing digital assets into specially created liquidity pools. Borrowers can then use their crypto as collateral to take out a loan against these pools. The interest rates are algorithmically adjusted based on the supply and demand for different tokens.
AAVE has grown from a peer-to-peer lending platform to a cornerstone of the DeFi ecosystem. The protocol features Flash Loans, the first uncollateralized loan option in DeFi. This innovative product allows borrowers to take out a loan and repay it within the same transaction, offering unique opportunities for arbitrage and efficiency.
AAVE’s native token, also named AAVE, has several uses in the protocol. It serves as a governance token, allowing owners to vote on key protocol parameters. It can also be staked in the protocol’s Safety Module, acting as a form of insurance.