Aave is a decentralized platform for lending and borrowing. It launched in January 2020 and lets people lend, take out loans, and earn interest on crypto assets without relying on a centralized intermediary. When someone supplies funds, they earn interest; when someone borrows, they pay interest.

Aave operates across the Ethereum, Polygon, and Avalanche blockchains. It is built as a network of smart contracts where assets can be handled by a distributed set of computers running the Aave software. 

AAVE is the platform’s native token.

What are AAVE key features and how does it work?

On Aave, users place digital assets into "lending pools." These pooled funds can then be lent out by the protocol. Currently, there are more than 30 pools on Aave for Ethereum-based assets, including stablecoins such as Tether, DAI, and USD Coin. There are also pools for other cryptocurrencies including ETH, BAT, and MANA. 

When users deposit tokens into a pool and add liquidity, they receive aTokens as a return. For instance, depositing ETH into the liquidity pool results in receiving aETH.

Borrowers using Aave must supply collateral before taking a loan. They can only borrow up to a fixed portion of the collateral’s value. Because crypto prices can move quickly, the Aave protocol uses an algorithm to automatically liquidate a borrower’s collateral if its value drops below a set threshold. 

Aave uses a metric called the “health factor,” which indicates how secure a loan is. It’s determined by comparing the collateral amount deposited to the borrowed amount. In general, a health factor higher than 1 is required to prevent automatic liquidation. 

Interest rates change depending on what you’re borrowing and on the level of liquidity available in the pool you’re lending into.

What can Aave be used for?

As a lending and borrowing platform, Aave enables investors to deposit stablecoins to earn interest with potentially better returns than typical savings accounts. Similarly, borrowers can use collateral they’ve deposited to access loans.

Aave also supports “flash loans.” These are loans that are taken out and repaid within the same block. They are issued and finalized nearly instantly, and they do not require any upfront collateral. 

A borrower can request funds through Aave, but the funds plus a small fee must be returned within the same block. On the Ethereum network, this occurs within a 13 second period. If the borrower fails to repay in time, the whole transaction is reverted, meaning no funds are actually borrowed. 

Using the AAVE token on the blockchain provides additional benefits, including reduced transaction fees for users who post AAVE as collateral, and no fees for users borrowing AAVE. Holders of AAVE may also have governance rights, which vary according to how much AAVE they hold.

Where can you buy AAVE?

You can trade or buy Aave on multiple centralized and decentralized exchanges, such as Binance and Huobi Global. For a complete list of supported exchanges see here.