What is AAVE? Why is AAVE’s GHO Stablecoin a hot topic?


The world of cryptocurrency is full of various lucrative projects. This article is all about what is aave crypto and the new project announcement. Is this DeFi project worth it? Let’s take a look in more detail.

What is AAVE?

Aave is a decentralized lending platform that runs on Ethereum. The project has experienced remarkable development since the launch of the loan pools. Anyone can use Aave to take out a loan or borrow Ether and ERC-20 tokens. Aave is considered an innovative project.

As previously mentioned, Aave is a decentralized lending/borrowing platform. Lenders make profit by depositing cryptos, while borrowers get the opportunity to have flash/microloans, provided they use cryptos as collateral. Aave holders benefit from reduced rates on the platform which gives them a vote in the future development of the project.

When building DeFi, Aave was one of the most laudable projects that closed the maximum funds. Along with its unique lending platform, they offer a selection of around 20 cryptocurrencies to lend and borrow. “Flash Loans is Aave’s main selling point, giving borrowers the opportunity to receive fast loans. This concrete POS comes with “Flash Payback”, where borrowers have to repay within the same transaction. Borrowers can also choose between a variable and a specified rate.

The most important step that the project has brought is the transition from a loan exchange platform to a loan pool. In pool lending, lenders place their tokens together in a pool and borrowers draw from it. The interest rate is set by supply and demand. If it is high, more than % of the pool is already lent. Aave currently supports different ERC-20 tokens. The range is continuously expanded. The current offer and the associated interest rates can be consulted on the website. According to the website, nearly $9,776,394,501.24 in cash is currently locked in Aave across 7 networks and 13 markets. It is a fully decentralized and community-governed protocol with 118,151 token holders.

A brief history of Aave and how does lending on Aave work?

In 2017, Stani Kuleshov created ETHLend. This ETHLend then developed into Aave, gradually elevated with more and more attributes. Here is Aave’s timeline:

  • 2017: ETHLend has extended ICO funding by $16 million.
  • 2018: ETHLend has been renamed Aave.
  • 2019: The Aave V1 public testnet has started.
  • January 2020: Aave V1 was founded. ETHLend stops its functions.
  • October 2020: Projected AAVE crypto token then migration LEND/AAVE 1:100.
  • 2020 December: AAVE V2 was founded with new features. Aave V1 works simultaneously.
  • 2021 July: Lending platform Aave has changed the name of its planned institutional DeFi product, Aave Pro, to Aave Arc. It has endeavored to display its function as an outlet for organizations to enter the decentralized economic enterprise.

In the fiduciary world, to obtain a loan, you have to go to a bank. The bank asks for guarantees. If you want to take out a loan from Aave, you must post a guarantee. For this, you file first as a lender. This is then accepted as a deposit in case you want to borrow a token. The down payment saved must always be greater than the loan borrowed. The amount the borrower can borrow regarding collateral (LTV) is separated for each token. The duration of the loan is not limited. Anyone can borrow funds as long as they are liquid.

With the Aave, the borrower can choose between a variable interest rate and a fixed interest rate. The fixed interest rate is generally higher than the regular variable interest rate. The fixed interest rate makes it easier to establish an estimate. If the price of the borrowed tokens increases comparable to the price of the deposit or if the value of the deposit decreases compared to the price of the borrowed tokens, a particular threshold value (liquidation threshold) is closed, which can trigger the liquidation. Then the deposit is transformed into a borrowed token and returned to the pool. The transformation of the deposit into a borrowed token is done via the community. If the threshold is exceeded, anyone can redeem the deposit for a cashback. So you should earn more than on the open market.

The stablecoin called GHO

Just recently, AAVE revealed that they are now preparing to launch their own stablecoin called “GHO”. This will be subject to the authorization of the Community Decentralized Autonomous Organization (DAO). If permission is granted, the stablecoin will be “backed by a diverse set of crypto-assets”, according to the proposal. With GHO, Aave hopes to generate a huge amount of revenue and put it into the DAO treasury. This revenue growth is used to support the steady growth of the project, especially during a market downturn, as well as to help the community and participants with governance.

The official page further describes that this fully collateralized stablecoin will be local to the Aave ecosystem and open to the Ethereum network. It is expected to be offered on other Aave-backed blockchains based on upcoming community votes.

Even a proposal, the goal is for Aave to allow users to mint GHO tokens against their provided collateral. GHO would be backed by various selected cryptocurrencies of users’ choice, while borrowers would continue to participate in their underlying collateral. It would work just like current stablecoins, which mint precisely $1 worth of tokens when users donate $1 worth of cryptocurrency. In GHO, a user must post collateral (at a specific collateral balance) in order to mint GHO.

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