AAVE is the native token used by the Aave protocol and now you can trade AAVE on ZebPay! When it comes to DeFi and DeFi tokens, AAVE is among the top five in the list with over $5B market capitalization.
Aave was started in 2017 by the name ETHLend, a decentralized project to facilitate services like lending and borrowing using crypto assets. The token involved was then called LEND.
Later in 2018-19, during the crypto bear market, there was a lack of liquidity on the platform and the team worked on revamping the platform. In early 2020, ETHLend was rebranded as Aave protocol with efficient solutions to address the liquidity problems faced by ETHLend. Along with the protocol, the team introduced the AAVE token, which is the backbone of governance and a security collateral in the protocol.
There are three major financial services which the Aave protocol provides:
- Flash loans
The Aave protocol also introduced a Safety Module (SI) and uses a liquidity pool to deal with liquidity issues. The safety module is a smart contract-based component where users can stake their AAVE token and get rewarded with safety incentives and fee distributions. Tokens staked in the SI will be used as a last resort in case of a shortfall, which is an event where the protocol lacks liquidity on the platform.
Another interesting feature of the Aave protocol is the ability to choose an interest rate. Lenders and borrowers can choose between two types of interests rates, stable and variable. This is particularly helpful considering the volatile nature of cryptocurrencies. Users can switch between the two types of interest rates anytime.
So, where does AAVE tokens come in all of this?
What can you do with AAVE?
AAVE is the native token of Aave protocol. Decentralized systems use such tokens to make the governance “decentralized” by allowing the holders of the tokens to have a role in decision-making of the protocol. Aave protocol uses AAVE as a governance token.
Holders of AAVE can vote for the Aave improvement proposals (AIP), which are proposals to upgrade the protocols in the future. One AAVE token gives the holder the right of one vote in the decision making of AIPs.
The tokenomics of AAVE are designed to have a total supply of 16 million tokens, out of which 13 million are redeemed from the LEND token holders (100 LEND tokens are exchanged for 1 AAVE token). The other 3 million AAVE tokens will be allocated to the AAVE reserve ecosystem.
With a market capitalization of 5.6 billion, AAVE is one of the best performing DeFi tokens out there and places itself in the first 20 cryptocurrencies and among the first five DeFi tokens by market capitalization.