{"id":37408,"date":"2021-08-03T09:47:06","date_gmt":"2021-08-03T06:47:06","guid":{"rendered":"https:\/\/forklog.com\/en\/?p=37408"},"modified":"2025-08-29T16:38:39","modified_gmt":"2025-08-29T13:38:39","slug":"what-is-aave","status":"publish","type":"post","link":"https:\/\/forklog.com\/en\/what-is-aave\/","title":{"rendered":"What is Aave?"},"content":{"rendered":"
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What is Aave?<\/strong><\/h2>\n
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Note: This article is outdated and awaiting an update.<\/strong><\/p>\n<\/div>\n

Aave<\/a> is a lending DeFi-<\/a>protocol that lets users lend and borrow cryptoassets with variable and stable interest rates.<\/p>\n<\/div>\n

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Who created Aave, and when?<\/strong><\/h2>\n

The creator of Aave is Finnish programmer and Master of Laws Stani Kulechov<\/a>.\u00a0<\/p>\n

While studying at the University of Helsinki, Kulechov became interested in blockchain<\/a> technology and Ethereum<\/a> and set out to build a decentralised crypto\u2011lending platform.\u00a0<\/p>\n

On May 1, 2017, Kulechov founded ETHLend. In November 2017 ETHLend launched<\/a> the ETHLend.io P2P lending platform and held<\/a> an ICO that raised $16.2m. The project sold 1bn LEND utility tokens; 300m (23%) went to the founder and team.\u00a0<\/p>\n

Amid the bear market, the protocol faced a liquidity crunch. In September 2018 ETHLend.io rebranded<\/a> to Aave. In Finnish, Aave (pronounced \u201cah-veh\u201d) means \u201cghost\u201d. The team says the name reflects how \u201cthe brand continues to intrigue users with innovative technologies and aims to create a transparent and open infrastructure for decentralised finance\u201d. ETHLend became<\/a> a subsidiary of Aave<\/a>.\u00a0<\/p>\n

In October 2019 the public testnet of Aave V1 went live.\u00a0<\/p>\n

On January 8, 2020, the mainnet of Aave\u2019s first version launched<\/a> on Ethereum.<\/p>\n

In October 2020 the native AAVE token was issued and the LEND\u2192AAVE migration took place at a 100:1 ratio.<\/p>\n

In December 2020 the Aave V2 mainnet went live<\/a>.<\/p>\n<\/div>\n

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How does lending and borrowing work on Aave?<\/strong><\/h2>\n

The platform initially used a peer-to-peer model (P2P), where users interacted via smart contracts. The drawback was that suitable counterparties and liquidity were not always available for efficient execution. The team therefore moved to a peer\u2011to\u2011contract (P2C) model, which most DeFi protocols use.\u00a0<\/p>\n

On a P2C platform, funds are deposited into a special contract that allows users to borrow assets instantly and pay interest for using the credit.<\/p>\n

\"\u0427\u0442\u043e
P2P model and P2C model. Source: Finematics<\/a>.<\/figcaption><\/figure>\n

The platform has two types of participants: borrowers and lenders.\u00a0<\/p>\n

Borrowing<\/em><\/p>\n

Users deposit assets into Aave as collateral. In return they can borrow a smaller amount, determined by the loan\u2011to\u2011value (LTV)<\/strong> ratio. LTV represents the maximum borrowing power against a given collateral.\u00a0<\/p>\n

Borrowing is overcollateralised to keep Aave solvent. The collateral\u2019s value must exceed<\/a> the value of the borrowed asset in line with its LTV, which depends on the collateral\u2019s volatility and other risk parameters.<\/p>\n

If, for example, the LTV is 80%, a user who posts 1 ETH as collateral can borrow at most the equivalent of 0.8 ETH. The LTV is set individually per collateral asset and is expressed as a percentage<\/a>.<\/p>\n

Users can post any token available on the platform<\/a> as collateral:<\/p>\n

\"\u0427\u0442\u043e<\/figure>\n

Aave was the first lending platform to let users borrow and lend USDT. This stablecoin, along with Binance\u2019s BUSD, Synthetix\u2019s sUSD and Gemini\u2019s GUSD, cannot be used<\/a> as collateral because their governance introduces a potential single point of failure.\u00a0<\/p>\n

The AMM Liquidity Pool allows Uniswap and Balancer liquidity providers to use their LP tokens as collateral in the Aave Protocol. The Uniswap aDAI pool is the largest source of aToken liquidity outside Aave.<\/p>\n

In total, Aave supports 22 assets in V1, 26 in V2 and 21 in the AMM Market<\/a>. By contrast, the main rival, Compound<\/a>, offers only 11 assets.<\/p>\n

Lending<\/em><\/p>\n

Users deposit assets into Aave and receive aTokens at a 1:1 ratio to the underlying. aTokens are akin to deposit certificates that accrue interest.\u00a0<\/p>\n

As long as protocol liquidity is available, aTokens can be redeemed 1:1 for the underlying. The aToken balance grows according to the protocol\u2019s current interest rate.<\/p>\n

\"\u0427\u0442\u043e
Aave\u2019s lending\/borrowing mechanism. Source: Coin 98 Insights<\/a>.<\/figcaption><\/figure>\n