What is AAVE?
24 Jan 20222min
What is AAVE?
Aave is a way for users to be connected to a worldwide network of lenders and borrowers in the cryptocurrency field. It’s all automated and works on a non-custodial basis, meaning you are in total control of your own wallet and where you choose to direct your cryptocurrency digital assets.
The group take their name from the Finnish word for ‘phantom’ or ‘something unseen’. Rather than relying on traditional banking systems and brick and mortar (or maybe marble and gold) buildings, the Aave protocol is fully automated allowing individual lenders and borrowers to connect with ghost-like efficiency via the liquidity pool. As of December 2021, the total value of this pool has the cash equivalent of more than $27 billion.
The protocol is built on the premise of lending and borrowing digital assets with in-built safety nets. This is done by employing smart contracts that automatically facilitate loan activity as well as innovative concepts such as collateral liquidations and staker slashing. Ultimately, this simply means it is very difficult to default on your payments.
In other words, join the global pool of lenders and borrowers, follow the rates as they change and watch your percent yield grow!
Let’s say you want to use Block Earner to borrow or lend USDC, the digital stablecoin pegged to the United States dollar. When this transaction is opened, you receive a tokenised version of that loan in return. This takes the form of aUSDC, aka AAVE USDC.
When buying 1000 USDC worth of aUSDC, this is equivalent to 1000 aUSDC. The rate stays at exactly 8% all year. The final standings would be at 1080 aUSDC, which can be sold back for 1,080 USDC and then finally back to AUD.
Anyone holding aUSDC will find their balance constantly increasing proportional with the yield rates at the time. For Block Earner users, this is updated daily. Notably, this value is guaranteed to never go negative, meaning your USDC value will never go down.
The exact details of this workflow are all handled by Block Earner’s backend, leaving the technical challenges out of your hands. All you need to do is choose your assets and let the code handle the dirty work!