Despite the influx of DeFi-based protocols in the crypto world, there has been an absence of lending and borrowing protocols that allow users to lend, borrow, and earn interest on their crypto assets. Aave protocol marks a shift from P2P based lending strategy to a pool-based strategy. Users don't need to wait for individual matching events to access funds. Instead, they get access to instant loans from the liquidity pools on the platform. The Ethereum-based DeFi protocol allows users to lend, borrow and earn interest on their crypto assets without the need for any financial intermediation or central authority. Let's learn more about the Aave protocol today.
Aave is an open-source and non-custodial DeFi protocol built on the Ethereum network that allows users to lend and borrow in around 20 cryptocurrencies and earn interest on the same.
The protocol facilitates this via a two-way mechanism:
The lenders deposit their digital assets into the liquidity pools specially created to earn interest.
The borrowers can take flash loans using their crypto as collateral using the liquidity collected in the liquidity pools.
Flash loans are the flagship product offered by the lending platform. Flash loans are the first-ever loan options in the DeFi space that don't require collateral. But they need to be repaid within the same transaction.
The borrowers also have an option to choose from variable and fixed interest rates. When the borrower chooses a fixed interest rate, it helps them have some cost certainty during volatile times. Conversely, the borrower may choose a variable interest rate if they feel the prices will fall in the near future.
AAVE token is the governance token of the platform and gives the holders voting powers to decide the future development of the platform. The holders also get access to discounted fees on the platform.
AAVE coin is an ERC-20 based token and is deflationary in nature. Staked tokens are used as collateral of the last resort if there's a shortfall in the DeFi protocol.
The total circulating supply of the AAVE token is linked to the total value locked on AAVE. The tokens are burned whenever the Aave platform acquires fees. The current circulating supply of AAVE is over 13 million, while the total supply is hard-capped at 16 million.
AAVE today is priced at $146, post a decline of 5% from yesterday. The coin has been steadily correcting since December, where it had hit a high of nearly $300.
Source: TradingView, Binance
As of now, it continues to form a descending wedge, which, if broken up, could see it test resistances at $169 and then $194 and $213. On the downside, there is support at $130 and $135.
Aave platform became one of the biggest DeFi projects in terms of the total value locked in its platform in 2020 when DeFi had become a new craze. It offers several USPs and gives it an edge over its competitors, especially in a market that is increasingly becoming over-crowded. The network's upcoming upgrades and social media platforms are creating waves in the DeFi community and may drive a potential rally in the coming months. It’s worth noting that AAVE has underperformed when compared to Ethereum (ETH) since Feb. 2021. Till the time it starts performing well against ETH, investors are better off buying ETH given its lower risk profile.
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Disclaimer:This article was authored by Giottus Cryptocurrency Exchange as a part of a paid partnership with The News Minute. Crypto-asset or cryptocurrency investments are subject to market risks such as volatility and have no guaranteed returns. Please do your own research before investing and seek independent legal/financial advice if you are unsure about the investments.