Aave

Last updated
Aave
Aave logo (2024).png
Denominations
CodeAAVE
Development
Original authorStani Kulechov
White paper Aave Protocol Whitepaper (version 1.0)
Development statusActive
Website
Website aave.com

Aave is a decentralized finance protocol (DeFi) that enables the lending and borrowing of cryptocurrencies without the involvement of intermediary financial institutions. [1] [2]

Contents

History

Aave was founded in 2017 under the name ETHLend by Stani Kulechov, a Russian-born Finnish lawyer. [3] Originally, the project was based on a peer-to-peer lending model. In January 2020, the protocol was relaunched under the new name Aave (Finnish for 'ghost') with a liquidity pool model. The associated governance token carries the same name (AAVE) and allows holders to vote on protocol changes. [4]

In 2025, Kulechov visited Dublin to headline two separate conferences as part of Dublin Tech Week, ETH Dublin and Blockchain Ireland. At the time, the Aave lending protocol recorded €40.3 billion in net deposits. [5]

In February 2025, Bloomberg reported that Aave remained the largest decentralized finance lending platform by deposits. [6]

At the Reform UK conference in September 2025, Kulechov spoke alongside Zia Yusuf, the party's efficiency chief, as part of its push to embrace the cryptocurrency industry, which includes accepting donations in bitcoin. [7] [8] [9]

Functionality

Aave allows crypto lending and borrowing without the use of a central authority. [10] Users can deposit various cryptocurrencies—such as Ether, USDC, or DAI—into pools. These funds are then used as collateral for issuing loans. [11] In return, depositors receive variable interest earnings. Borrowers must provide collateral that exceeds the value of the loan. [4] [2]

Aave allows users to choose between variable and stable interest rates. [4] The protocol also supports flash loans—loans that must be taken out and repaid within a single block and are therefore suitable only for experienced developers. [11]

In 2023, Aave announced the launch of a decentralized stablecoin called GHO. This stablecoin is backed by collateral deposited within the Aave protocol. [1]

Governance

Aave is an open-source project that is governed by a decentralized community of AAVE token holders. [10] Through a so-called DAO (Decentralized Autonomous Organization), changes to the protocol can be decided. [1]

Significance

A 2024 working paper from the Bank for International Settlements discussed agents' motivations to engage in DeFi borrowing and lending activity, using granular transaction-level data from the Aave V2 protocol. [12]

An article in the Journal of Risk and Financial Management includes Aave as part of a broader risk assessment of DeFi platforms, examining its lending mechanisms and the governance practices employed through decentralized autonomous organizations (DAOs). [13]

A report by the Wharton School's Blockchain and Digital Asset Project describes Aave as a case study in the structure of decentralized lending protocols, with specific reference to its introduction of flash loans. [14] [15]

A 2024 article published by the Stanford Journal of Blockchain Law & Policy discusses Aave's DAO-based decision-making process in the context of regulatory frameworks and decentralized system accountability. [16]

References

  1. 1 2 3 Shen, Muyao (July 15, 2023). "Biggest DeFi Lender Aave Set to Launch Decentralized Stablecoin". Bloomberg.com. Retrieved October 1, 2025.
  2. 1 2 Lipton, Eric; Livni, Ephrat (September 5, 2021). "Crypto's Rapid Move Into Banking Elicits Alarm in Washington". The New York Times. Retrieved October 1, 2025.
  3. ↑ Nicolle, Emily; Kharif, Olga; Akhtar, Tanzeel; Miller, Hannah (May 15, 2022). "Britain's Crypto List: Here Are the People to Watch". Bloomberg.com. Retrieved October 1, 2025.
  4. 1 2 3 Pandl, Zach (October 22, 2021). "Opportunities and Risks in Decentralized Finance (Pandl/Rosenberg)". Goldman Sachs Research. Retrieved October 1, 2025.
  5. ↑ Dooley, Hugh (May 28, 2025). "'Dublin can be a leader' in blockchain, says digital finance founder Stani Kulechov". The Irish Times. Retrieved October 1, 2025.
  6. ↑ Shen, Muyao (February 11, 2025). "Aave Competitors Look for Their Piece of the Pie in DeFi" . Bloomberg.com. Retrieved October 1, 2025.
  7. ↑ Partington, Richard (September 5, 2025). "'They're toxic but popular': businesses wary as they head to Reform's party conference". the Guardian. Retrieved October 1, 2025.
  8. ↑ Partington, Richard (September 5, 2025). "Reform UK could strip FCA of power to regulate banking if elected". the Guardian. Retrieved October 1, 2025.
  9. ↑ Nicol-Schwarz, Kai (September 8, 2025). "'Huge work to do to become credible': Tech groups question Reform party conference focus". Sifted. Retrieved October 1, 2025.
  10. 1 2 Sigalos, MacKenzie (October 14, 2024). "Trump's crypto coin goes on sale with Election Day just three weeks out". CNBC. Retrieved October 1, 2025.
  11. 1 2 Vigna, Paul (May 8, 2022). "This Billion-Dollar Crypto Loan Is Easy to Get, but Gone in a Flash". The Wall Street Journal. Retrieved October 1, 2025.
  12. ↑ Cornelli, Giulio; Gambacorta, Leonardo; Garratt, Rodney; Reghezza, Alessio (April 30, 2024). "Why DeFi lending? Evidence from Aave V2". Bank for International Settlements . Retrieved October 1, 2025.
  13. ↑ Adamyk, Bogdan; Benson, Vladlena; Adamyk, Oksana; Liashenko, Oksana (January 16, 2025). "Risk Management in DeFi: Analyses of the Innovative Tools and Platforms for Tracking DeFi Transactions". Journal of Risk and Financial Management . 18 (1): 38. doi: 10.3390/jrfm18010038 . ISSN   1911-8074.
  14. ↑ "DeFi Beyond the Hype: The Emerging World of Decentralized Finance" (PDF). Wharton Blockchain and Digital Asset Project. 2021.
  15. ↑ "Aave". Fortune. December 17, 2023. Retrieved October 1, 2025.
  16. ↑ Lorenz, Georg; Law, Capital Markets (June 28, 2024). "Regulating Decentralized Financial Technology: A Qualitative Study on the Challenges of Regulating DeFi with a Focus on Embedded Supervision". Stanford Journal of Blockchain Law & Policy . PubPub. Retrieved October 1, 2025.
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