{"id":10123,"date":"2023-01-01T20:21:10","date_gmt":"2023-01-01T20:21:10","guid":{"rendered":"https:\/\/www.bitnovo.com\/blog\/?p=10123"},"modified":"2022-05-17T01:19:47","modified_gmt":"2022-05-17T01:19:47","slug":"what-is-aave-and-how-does-it-work","status":"publish","type":"post","link":"https:\/\/www.bitnovo.com\/blog\/en\/what-is-aave-and-how-does-it-work","title":{"rendered":"What is AAVE and how does it work?"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-transparent ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Alternar tabla de contenidos\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #ffffff;color:#ffffff\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #ffffff;color:#ffffff\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-aave-and-how-does-it-work\/#history_of_aave\" >History of AAVE<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-aave-and-how-does-it-work\/#how_does_aave_work\" >How does AAVE work?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-aave-and-how-does-it-work\/#what_mechanisms_does_aave_use\" >What mechanisms does Aave use?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-aave-and-how-does-it-work\/#liquidity_pools_for_loans\" >Liquidity Pools for loans<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-aave-and-how-does-it-work\/#interest_rates_on_loans\" >Interest rates on loans<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-aave-and-how-does-it-work\/#loan_security\" >Loan security<\/a><\/li><\/ul><\/nav><\/div>\n<span class=\"span-reading-time rt-reading-time\" style=\"display: block;\"><span class=\"rt-label rt-prefix\">Tiempo de lectura:<\/span> <span class=\"rt-time\"> 4<\/span> <span class=\"rt-label rt-postfix\">minutos<\/span><\/span><p>Aave is one of the oldest and best known DeFi projects or\u00a0<strong>Decentralized Finance<\/strong>. Its original name was ETHLend and they were dedicated to lending with cryptocurrencies.<\/p>\n<p>With the evolution of cryptocurrencies, the Aave platform has been forced to change some aspects of its operation. It is now much more than what it was before, a simple\u00a0<strong>lending<\/strong>\u00a0platform with cryptocurrencies.<\/p>\n<div class=\"is-divider divider clearfix\"><\/div>\n<div class=\"is-divider divider clearfix\"><\/div>\n<div class=\"is-divider divider clearfix\"><\/div>\n<h2><span class=\"ez-toc-section\" id=\"history_of_aave\"><\/span><strong>History of AAVE<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<div class=\"is-divider divider clearfix\"><\/div>\n<p>Both Aave and its previous name,\u00a0<strong>ETHLend<\/strong>\u00a0were founded by\u00a0<strong>Stani Kulechov<\/strong>\u00a0with the goal of increasing loan applications on Ethereum. Its creator, Kulechov is an entrepreneurial law school graduate who started in the programming world at a very young age. He was among the first to start with the\u00a0<strong>blockchain<\/strong>\u00a0space.<\/p>\n<p>El proyecto fue construido antes de que existiera la financiaci\u00f3n\u00a0<b>descentralizada<\/b>\u00a0y fue lanzado a la red a finales del a\u00f1o 2017 bajo su primer nombre, ETHLend. Posteriormente el CEO decidi\u00f3 cambiar el nombre de ETHLend a\u00a0<b>Aave<\/b>, ya que la compa\u00f1\u00eda hab\u00eda evolucionado y ofrec\u00eda nuevos servicios adem\u00e1s del pr\u00e9stamo Ether.<\/p>\n<p>After the launch of ETHLend, the project managed to raise in an ICO the total of\u00a0<strong>$17 million<\/strong>\u00a0thanks to which the platform went ahead and managed to release, at the end of 2017 its LEND token. The project began by making\u00a0<strong>P2P<\/strong>\u00a0loans among its users, thus creating a decentralized lending market. Its users were divided between those who wanted to<strong>\u00a0borrow<\/strong>\u00a0and those who\u00a0<strong>lent<\/strong>\u00a0their cryptocurrencies in exchange for interest.<\/p>\n<p>Gradually it evolved into<strong>\u00a0liquidity<\/strong>\u00a0market-based lending where the price is calculated based on the\u00a0<strong>availability<\/strong>\u00a0of the assets. In Aave, whoever wants to receive a loan will have to put up\u00a0<strong>collateral<\/strong>\u00a0as a guarantee to ensure that there is no risk of default.<\/p>\n<p>According to its creator, the Aave project has as its target market those users who already\u00a0<strong>participate<\/strong>\u00a0in the world of cryptocurrencies. This new project created from LEND creates a new market where the interest rate of a loan is defined through an\u00a0<strong>algorithm<\/strong>\u00a0between supply and demand at the second of making the loan of assets. Currently this concept is known as\u00a0<strong>automated<\/strong>\u00a0money market.<\/p>\n<div class=\"is-divider divider clearfix\"><\/div>\n<div class=\"is-divider divider clearfix\"><\/div>\n<div id=\"image_556473789\" class=\"img has-hover x md-x lg-x y md-y lg-y\">\n<div class=\"img-inner dark\"><img fetchpriority=\"high\" decoding=\"async\" class=\"attachment-large size-large lazyloaded\" src=\"https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2021\/03\/Qu%C3%A9-es-AAVE2.jpg\" sizes=\"(max-width: 768px) 100vw, 768px\" srcset=\"https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2021\/03\/Qu\u00e9-es-AAVE2.jpg 768w, https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2021\/03\/Qu\u00e9-es-AAVE2-300x205.jpg 300w\" alt=\"Qu\u00e9-es-AAVE\" width=\"768\" height=\"526\" data-srcset=\"https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2021\/03\/Qu\u00e9-es-AAVE2.jpg 768w, https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2021\/03\/Qu\u00e9-es-AAVE2-300x205.jpg 300w\" data-src=\"https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2021\/03\/Qu\u00e9-es-AAVE2.jpg\" data-sizes=\"(max-width: 768px) 100vw, 768px\" \/><\/div>\n<\/div>\n<div class=\"is-divider divider clearfix\"><\/div>\n<div class=\"is-divider divider clearfix\"><\/div>\n<div class=\"is-divider divider clearfix\"><\/div>\n<h2><span class=\"ez-toc-section\" id=\"how_does_aave_work\"><\/span><strong>How does AAVE work?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<div class=\"is-divider divider clearfix\"><\/div>\n<p>Aave uses a very\u00a0<strong>simple<\/strong>\u00a0interface that has as its main objective to achieve an algorithmic lending marketplace where users can invest money in\u00a0<strong>liquidity pools<\/strong>\u00a0allowing them to make loans to other users and earn<strong>\u00a0interest<\/strong>\u00a0for being liquidity providers.<\/p>\n<p>Another of the platform\u2019s main objectives is to be able to offer\u00a0<strong>collateralized<\/strong>\u00a0lending and various operating options and policies to meet the needs of users in different markets.<\/p>\n<p>To achieve these objectives, Aave uses a very simple operation. It is based on the formation of liquidity providers by i<strong>nvesting<\/strong>\u00a0in Aave\u2019s pools. Thanks to this, for each new loan made on the platform, the liquidity provider will obtain a\u00a0<strong>profit<\/strong>\u00a0that will be added to the total profit of its investment.<\/p>\n<p>On the other hand, users who need the loans only have to enter the platform and\u00a0<strong>apply<\/strong>\u00a0for it. Aave will ask you for collateral as a\u00a0<strong>guarantee<\/strong>\u00a0in exchange for the loan and that\u2019s it. The operation is simple, you\u00a0<strong>pledge<\/strong>\u00a0your cryptoassets as collateral in exchange for a loan and once you\u00a0<strong>repay<\/strong>\u00a0the loan, you will be returned those cryptoassets.<\/p>\n<p>These two functionalities are the essence of the Aave platform, offering\u00a0<strong>decentralized<\/strong>\u00a0lending in an easy and secure way.<\/p>\n<div class=\"is-divider divider clearfix\"><\/div>\n<div class=\"is-divider divider clearfix\"><\/div>\n<div class=\"is-divider divider clearfix\"><\/div>\n<h2><span class=\"ez-toc-section\" id=\"what_mechanisms_does_aave_use\"><\/span><strong>What mechanisms does Aave use?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<div class=\"is-divider divider clearfix\"><\/div>\n<p>Among the main advantages of the platform\u2019s operation are the\u00a0<strong>lack of centralized intermediaries<\/strong>\u00a0in the process, since only transparent smart contracts are interacted with.<\/p>\n<p>Another great advantage is that our cryptocurrencies are<strong>\u00a0not sold<\/strong>\u00a0or exchanged. When we repay the loan, we will get them back without risk of loss. These mechanisms put Aave ahead of the banks.<\/p>\n<div class=\"is-divider divider clearfix\"><\/div>\n<div class=\"is-divider divider clearfix\"><\/div>\n<div class=\"is-divider divider clearfix\"><\/div>\n<h2><span class=\"ez-toc-section\" id=\"liquidity_pools_for_loans\"><\/span><strong>Liquidity Pools for loans<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<div class=\"is-divider divider clearfix\"><\/div>\n<p>All this is just a small portion of all the benefits the platform offers.\u00a0<strong>Liquidity pools<\/strong>\u00a0form one of the most important parts of the ecosystem. These are a set of cryptocurrencies introduced into the\u00a0<strong>protocol<\/strong>. These pools are formed by the platform<strong>\u00a0users<\/strong>\u00a0themselves.<\/p>\n<p>Aave pools serve as an\u00a0<strong>incentive<\/strong>\u00a0for many more users to join aave to<strong>\u00a0inject liquidity<\/strong>\u00a0and thereby earn more profit by making loans. These pools represent cryptocurrencies such as MKR, DAI, USDC,\u00a0<strong>Ethereum<\/strong>\u00a0and many other cryptocurrencies in addition to the platform\u2019s native token, LEND. In total the platform supports liquidity pools of 19 tokens in total.<\/p>\n<p>Because of all these options, Aave has made its way into the current DeFi ecosystem and more and more users are showing interest in how the platform works. These pools not only aim to\u00a0<strong>move money<\/strong>, but also to generate profits. These profits move in annual percentages ranging from\u00a0<strong>0.02%<\/strong>\u00a0to\u00a0<strong>4.45%<\/strong>.<\/p>\n<div class=\"is-divider divider clearfix\"><\/div>\n<div id=\"image_1821757420\" class=\"img has-hover x md-x lg-x y md-y lg-y\">\n<div class=\"img-inner dark\"><img decoding=\"async\" class=\"attachment-large size-large lazyloaded\" src=\"https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2021\/03\/Qu%C3%A9-es-AAVE1.jpg\" sizes=\"(max-width: 768px) 100vw, 768px\" srcset=\"https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2021\/03\/Qu\u00e9-es-AAVE1.jpg 768w, https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2021\/03\/Qu\u00e9-es-AAVE1-300x205.jpg 300w\" alt=\"Qu\u00e9-es-AAVE\" width=\"768\" height=\"526\" data-srcset=\"https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2021\/03\/Qu\u00e9-es-AAVE1.jpg 768w, https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2021\/03\/Qu\u00e9-es-AAVE1-300x205.jpg 300w\" data-src=\"https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2021\/03\/Qu\u00e9-es-AAVE1.jpg\" data-sizes=\"(max-width: 768px) 100vw, 768px\" \/><\/div>\n<\/div>\n<div class=\"is-divider divider clearfix\"><\/div>\n<div class=\"is-divider divider clearfix\"><\/div>\n<h2><span class=\"ez-toc-section\" id=\"interest_rates_on_loans\"><\/span><strong>Interest rates on loans<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<div class=\"is-divider divider clearfix\"><\/div>\n<p>Another of Aave\u2019s functions is to offer\u00a0<strong>interest rates<\/strong>\u00a0that are\u00a0<strong>adjusted<\/strong>\u00a0to the users\u2019 needs. The platform offers different\u00a0<strong>types<\/strong>\u00a0of interest rates and users can choose from these depending on which one best suits their loan. This feature has set<strong>\u00a0Aave<\/strong>\u00a0apart from other platforms in the lending industry and has allowed it to continue to climb the rungs of the ladder in the last year.<\/p>\n<div class=\"is-divider divider clearfix\"><\/div>\n<div class=\"is-divider divider clearfix\"><\/div>\n<div class=\"is-divider divider clearfix\"><\/div>\n<h2><span class=\"ez-toc-section\" id=\"loan_security\"><\/span><strong>Loan security<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<div class=\"is-divider divider clearfix\"><\/div>\n<p>Aave also offers a set of safeguards to deal with the constant volatility to which cryptocurrencies are subjected, preventing them from breaking the market dynamics within the platform. Most of these safeguards are found in Safety Module (SM) or the Aave Safety Module. The main function of this system is to\u00a0<strong>watch<\/strong>\u00a0that the proper functioning of the platform is not affected.<\/p>\n<p>This security system includes the following areas:<\/p>\n<ul>\n<li aria-level=\"1\"><b>The Staking module.\u00a0<\/b>This area is intended to protect the liquidity of the protocol in the event of a crash in the crypto markets.<\/li>\n<li aria-level=\"1\"><b>The Backstop module.\u00a0<\/b>This system contains the previously deposited stablecoins and the ETH that occupies a priority position in the auction in case of a shortfall.<\/li>\n<li aria-level=\"1\"><b>Auction module.\u00a0<\/b>This module is activated in case of a downturn by converting the blocked tokens to reduce losses to the minimum cost.<\/li>\n<li aria-level=\"1\"><b>Ecosystem reserves.\u00a0<\/b>These have the function of covering losses within the platform.<\/li>\n<li aria-level=\"1\"><b>Oracles.<\/b>\u00a0In last place we have the\u00a0<a href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-a-blockchain-oracle\/\">oracles<\/a>\u00a0in charge of finding immediate information about the market and from this information make decisions on the platform.<\/li>\n<\/ul>\n<div class=\"is-divider divider clearfix\"><\/div>\n","protected":false},"excerpt":{"rendered":"<p><span class=\"span-reading-time rt-reading-time\" style=\"display: block;\"><span class=\"rt-label rt-prefix\">Tiempo de lectura:<\/span> <span class=\"rt-time\"> 4<\/span> <span class=\"rt-label rt-postfix\">minutos<\/span><\/span>Aave is one of the oldest and best known DeFi projects or\u00a0Decentralized Finance. Its original name was ETHLend and they were dedicated to lending with cryptocurrencies. With the evolution of cryptocurrencies, the Aave platform has been forced to change some aspects of its operation. It is now much more than what it was before, a [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":8104,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[165],"tags":[],"class_list":["post-10123","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-cryptocurrencies"],"_links":{"self":[{"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/posts\/10123","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/comments?post=10123"}],"version-history":[{"count":0,"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/posts\/10123\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/media\/8104"}],"wp:attachment":[{"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/media?parent=10123"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/categories?post=10123"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/tags?post=10123"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}