What is Aave?

Aave is a decentralized liquidity market protocol where users can engage as suppliers or borrowers. Suppliers perform the crucial function of providing liquidity and earn rewards, while borrowers obtain crypto loans and are charged for it.

Here’s a look at the various components of the Aave ecosystem you will encounter on the platform.

What is unique about Aave?

Aave token

AAVE is used for Aave Protocol governance. AAVE token holders play a role in determining the direction of the platform by voting on Aave Improvement Proposals (AIPs).

Staking Aave

Staking consists of depositing your AAVE tokens within the protocol Safety Module. The purpose of staking is to act as a mitigation tool in case of a Shortfall Event, a situation where there is a deficit in the protocol’s reserves. It can be caused by a large number of liquidations or a sudden, significant drop in prices of assets held as collateral.

As an incentive for this, Safety Module stakers will receive Safety Incentives.

Aave provides access to several opportunities on the blockchain.

What can I use Aave for?

• Lending: You can earn yield by lending your favorite asset to borrowers. This involves depositing your assets into the protocol’s lending pools.
• Borrow: You can become a borrower by locking up collateral to obtain assets temporarily. This allows you to access liquidity without requiring you to sell existing holdings. However, you are required to repay your loans with interest.
• Staking: You can deposit your Aave token into a staking pool to earn yield over time.
• Flash Loan: A flash loan offers instant, uncollateralized borrowing and repayment within the same transaction.