Aave is an open-source lending protocol that allows anyone to become a lender or borrower. In this comprehensive guide, you'll discover how blockchain-based lending works and why Aave stands as a leading DeFi platform.
The History of Aave
Founded in 2017 by Stani Kulechov, Aave began as ETHLend—a peer-to-peer lending platform inspired by Ethereum. By 2020, it rebranded to Aave and launched on Ethereum’s mainnet. Since then, Aave has expanded to multiple blockchains, including:
- Polygon
- Avalanche
- Optimism
- Arbitrum
At its peak in October 2021, Aave’s total value locked (TVL) reached $19.13 billion**, with nearly $15 billion on Ethereum alone. Despite the 2022 bear market, Aave continues to dominate decentralized lending with a $5.6 billion TVL**.
👉 Discover how Aave compares to Compound
Key Milestones:
- 2020: Received an electronic money institution license from UK regulators.
- 2021: Surpassed Compound as the top lending dApp.
- 2022: Launched the Aave mobile wallet and Lens Protocol (a Web3 social media framework).
How Does Aave Work?
Decentralized Lending Explained
Unlike traditional banks, Aave uses smart contracts to automate lending/borrowing logic. Here’s the process:
- Liquidity Pools: Lenders deposit crypto assets (e.g., USDC, ETH) into pools, earning APY (Annual Percentage Yield).
- Borrowing: Users take loans against collateral (e.g., 1 ETH → borrow 0.85 ETH worth of stablecoins).
- Interest Rates: Choose between variable rates (lower, tied to market volatility) or stable rates (higher, fixed).
Loan-to-Value (LTV) Ratios
| Asset | LTV Ratio |
|--------|-----------|
| ETH | 82.5% |
| USDC | 85.5% |
| AAVE | 62.5% |
👉 Learn about flash loans on Aave
Aave Tokenomics: Staking & Security
- AAVE Token: Used for staking in the Safety Module (APR: 9.04%). This acts as a liquidity backstop during shortages.
- Supply: Max 16 million AAVE; ~13.9 million in circulation.
Why Stake AAVE?
- Earn passive income.
- Enhance protocol security.
- No borrowing fees for AAVE-backed loans.
Lens Protocol: Aave’s Web3 Social Media
Launched in 2022, Lens Protocol enables decentralized social media platforms where:
- Profiles are NFT-based.
- Posts/comments are immutable (stored on-chain via Polygon for low fees).
FAQs
1. Is Aave safe?
Yes—Aave’s smart contracts are audited, and the Safety Module protects against liquidity crises.
2. What’s the difference between Aave and Compound?
Aave offers rate-switching and flash loans, while Compound uses purely variable rates.
3. How do I earn on Aave?
Deposit crypto into liquidity pools or stake AAVE tokens.
4. Can I borrow without collateral?
No—Aave requires overcollateralization (e.g., 150% collateral for stablecoin loans).
5. What chains support Aave?
Ethereum, Polygon, Avalanche, and more.
Edited for clarity and SEO optimization. Original meaning preserved.
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