Aave Crypto: What Is Aave Coin?

Aave Crypto: What Is AAVE coin?

Aave Crypto

What is AAVE Coin?

Named after the Finnish word for ‘ghost’, Aave is a key pillar of the DeFi or decentralized finance platform. Focused on creating an open and transparent peer-2-peer lending and borrowing money market. So, Let’s lift the lid on Aave.

What is Aave Coin

Unlike traditional banks or other centralized finance services, Aave token requires zero registration or Know Your Customer processes. Simply connect your Web 3.0 wallet like  Metamask and start depositing, borrowing, staking or swapping on the DeFi platform.

All transactions are automatically executed on the Ethereum blockchain using smart contracts. How Aave works is that instead of matching a lender to borrower 1:1,  lenders deposit their funds into liquidity pools, which users then borrow from.  And Each pool has reserves to act as a hedge against volatility. Instead of traditional banks raking in all the fees,  Aave rewards lenders for depositing their funds and providing liquidity to the market.  Lenders earn from two sources: the interest rate paid on loans,  and a percentage of flash loan fees.

We’ll get into what flash loans are in a minute. But first, Aave lenders earn interest-earning tokens called aTokens. For example, depositing  ETH will earn you aETH, which is pegged 1:1 to the value of the underlying asset deposited.  But, if the price changes, aTokens will continue to maintain the underlying asset price  while increasing or decreasing the amount of aTokens owned.

What are flash loans?

Flash loans are a unique Aave feature  native to DeFi as a whole. Flash loans are loans charged at a low fee of just 0.09%,  and they let investors take out loans without any collateral. Instead, borrowers must repay the loan before the transaction ends—or in blockchain terms—before the  next block is mined. If the loan is not repaid in time, the transaction and all subsequent  transactions that were performed with it will get reversed, cancelled or will just fail.

Given the rather complex technicalities involved,  flash loans are designed for advanced technical investors capitalizing on  opportunities like yield farming, arbitrage or refinancing within the Ethereum blockchain ecosystem. What about borrowing? Borrowers collaterize their crypto assets to take out loans  from the liquidity pools. Borrowers must lock up collateral to borrow an amount that is less,  or around 50% to 70%, of the collateral locked up. Which brings us to another unique feature of Aave: interest rate switching.

Borrowers are able to  switch between fixed and variable or floating interest rates to take advantage of different  market conditions at any time.

Aave, Aave Crypto, Aave Coin, Aave Token

This flexibility is definitely unique to Aave and DeFi as a whole,  which is why Aave is well poised to be the decentralized future of finance where lending and  borrowing is executed completely peer 2 peer, and without middlemen, restrictions or regulations. Currently, Aave allows users to lend and borrow across  24 cryptocurrencies from stablecoins to altcoins like DAI, YFI and SUSHI. What about the AAVE token? Aave’s native token is an ERC-20 token called well, Aave, Though,  it was formerly known as LEND before Aave rebranded from ETHLend back in September 2018.

The Aave token provides utility for several functions.

First,  Aave can be staked as a governance token, giving holders the power to decide on the  future direction of the protocol by voting on Aave Improvement Proposals. Secondly, users can stake Aave within the protocol to earn staking rewards. Finally, borrowers who use Aave as collateral also get discounted fees on the platform. Aave is burned whenever users pay fees on the protocol,  making it a deflationary token.

Also, Aave has an extremely limited circulating supply  of just 12 million Aave coins and a max supply of 16 million, even less than Bitcoin’s 21 million. So what are your thoughts on the Aave protocol or the Aave token? Are you bullish on Aave for 2021  and beyond? Smash the like button, subscribe and let us know in the comments below..

Read More: What is DeFi in Blockchain | Decentralized Finance Explained

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