Aave

Last updated
Aave
Original author(s) Stani Kulechov
Developer(s) Aave Labs
Initial release2017;8 years ago (2017)
Stable release
v3
Repository github.com/aave/aave-v3-core
Written in Solidity
Platform 12 networks as of January 2025, [1] [2] [3] including: Avalanche
Base
Ethereum
Polygon
Type Decentralized finance
License GNU General Public License v3.0
Website aave.com

Aave, formerly known as ETHLend, is an open-source decentralized finance (DeFi) protocol which was initially built on the Ethereum blockchain and released in 2020. [4] [5] It is one of the largest cryptocurrency liquidity protocols. [6] [7] The Aave Protocol uses smart contracts to automate processes, including distributing funds and handling collateral. [8] [6]

Contents

Overview

Aave Protocol allows anyone with a cryptocurrency wallet to supply and borrow digital assets across Ethereum, Optimism, Base, Polygon, Avalanche, and other EVM-compatible blockchains by posting collateral, [9] [4] without third-party intermediaries such as banks and brokerages. [10] Suppliers share the interest paid by borrowers, who deposit cryptocurrency assets into different liquidity pools. [9] In turn, suppliers can use their cryptocurrency assets as collateral to borrow at stable or variable interest rates. [9] [4] There are currently three versions of Aave, each of which implemented upgrades to the decentralized protocol: V1, V2 and V3. [9]

Version 3 of the protocol, Aave v3, went live in 2023 with lower transaction fees and the ability to supply and borrow across virtually all Layer 2 blockchains that use Ethereum as a settlement layer. [11] [12] [9]

A 2000 academic paper examined collateral liquidations on Aave, where arbitrageurs repay loans in exchange for discounted collateral, often using flash loans. By analyzing blockchain data, it highlights the price effects of these liquidity trades on decentralized exchanges and demonstrates both temporary and permanent impacts on asset prices. [13]

In October 2021, Aave reached approximately $28 billion in Total Value Locked (TVL) across multiple chains, including Ethereum, Polygon, and Avalanche. [4] [14]

The Aave Protocol is governed by AAVE token holders who form the Aave Decentralized Autonomous Organization (DAO). [4] [9] The Aave DAO governs the protocol and proposes, discusses and votes on any changes to the protocol via Aave Improvement Proposals (AIPs).

A study by Gudgeon et al (2020) reviewed the methodologies for setting interest rates in DeFi protocols for loanable funds (PLFs), which are decentralized markets using distributed ledgers and smart contracts to facilitate borrowing and saving, with interest rate mechanisms balancing supply and demand. The study reviewed the methodologies for setting interest rates in three major DeFi PLFs,[ which? ] empirically analyzing their behavior under varying liquidity conditions and investigating the relationships between interest rates across different protocols using a Vector Error Correction Model[ clarification needed ]. [15]

A study by Ao et al. (2022) applied social network analysis to measure decentralization in DeFi token transactions on the Ethereum blockchain, focusing on the AAVE token. It found a core-periphery structure[ clarification needed ] in the transaction network, with centralized exchanges at the core, and reportedly demonstrated that greater decentralization was associated with higher returns and lower volatility in AAVE markets. [16]

History

The Aave Protocol was founded and released on Ethereum mainnet in January 2020 by Aave Labs founder Stani Kulechov, [6] [4] [17] Russian-born Finnish programmer and lawyer who had moved to Finland with his family as a child. [18] [11] Aave means "ghost" in Finnish, which speaks to the transparent aspect of the decentralized open source protocol. [19] [20]

Aave was preceded by ETHLend, also developed by Kulechov, which launched in 2017. [19] [21]

In July 2023, Aave released GHO, an Aave-native, decentralized stablecoin. GHO is backed by assets available in the Aave Protocol. [7]

Journal articles

Below is a list of relevant peer-reviewed journal publications that discuss Aave Protocol.

Related Research Articles

<span class="mw-page-title-main">Cryptocurrency</span> Digital currency not reliant on a central authority

A cryptocurrency, crypto-currency, or colloquially, crypto, is a digital currency designed to work through a computer network that is not reliant on any central authority, such as a government or bank, to uphold or maintain it.

<span class="mw-page-title-main">Ethereum</span> Open-source blockchain computing platform

Ethereum is a decentralized blockchain with smart contract functionality. Ether is the native cryptocurrency of the platform. Among cryptocurrencies, ether is second only to bitcoin in market capitalization. It is open-source software.

A decentralized autonomous organization (DAO), sometimes called a decentralized autonomous corporation (DAC), is an organization managed in whole or in part by decentralized computer programs, with voting and finances handled through a decentralized ledger technology like a blockchain.. In particular, processes run by the decentralized programs must be central, enduring, and distinctive to the identity of the organization for the organization to be a DAO. In general terms, DAOs are member-owned communities without centralized leadership. The precise legal status of this type of business organization is unclear.

Circle is a peer-to-peer payments technology company that now manages stablecoin USDC, a cryptocurrency the value of which is pegged to the U.S. dollar. It was founded by Jeremy Allaire and Sean Neville in October 2013. Circle is headquartered in Boston, Massachusetts. USDC, the second largest stablecoin worldwide, is designed to hold at or near a stable price of $1. The majority of its stablecoin collateral is held in short-term U.S. government securities.

A decentralised application is an application that can operate autonomously, typically through the use of smart contracts, that run on a decentralized computing, blockchain or other distributed ledger system. Like traditional applications, DApps provide some function or utility to its users. However, unlike traditional applications, DApps operate without human intervention and are not owned by any one entity, rather DApps distribute tokens that represent ownership. These tokens are distributed according to a programmed algorithm to the users of the system, diluting ownership and control of the DApp. Without any one entity controlling the system, the application is therefore decentralised.

<span class="mw-page-title-main">Cardano (blockchain platform)</span> Public blockchain platform

Cardano is a public blockchain platform. It is open-source and decentralized, with consensus achieved using proof of stake. It can facilitate peer-to-peer transactions with its internal cryptocurrency, ADA.

A cryptocurrency bubble is a phenomenon where the market increasingly considers the going price of cryptocurrency assets to be inflated against their hypothetical value. The history of cryptocurrency has been marked by several speculative bubbles on a boom to bust cycle.

A stablecoin is a type of cryptocurrency where the value of the digital asset is supposed to be pegged to a reference asset, which is either fiat money, exchange-traded commodities, or another cryptocurrency.

Cryptoeconomics is an evolving economic paradigm for a cross-disciplinary approach to the study of digital economies and decentralized finance (DeFi) applications. Cryptoeconomics integrates concepts and principles from traditional economics, cryptography, computer science, and game theory disciplines. Just as traditional economics provides a theoretical foundation for traditional financial services, cryptoeconomics provides a theoretical foundation for DeFi services bought and sold via fiat cryptocurrencies, and executed by smart contracts.

<span class="mw-page-title-main">Tron (blockchain)</span> Blockchain computing platform

Tron is a decentralized, proof-of-stake blockchain with smart contract functionality. The cryptocurrency native to the blockchain is known as Tronix (TRX). It was founded in March 2014 by Justin Sun and since 2017 has been overseen and supervised by the TRON Foundation, a non-profit organization in Singapore, established in the same year. It is open-source software.

Decentralized finance provides financial instruments and services through smart contracts on a programmable, permissionless blockchain. This approach reduces the need for intermediaries such as brokerages, exchanges, or banks. DeFi platforms enable users to lend or borrow funds, speculate on asset price movements using derivatives, trade cryptocurrencies, insure against risks, and earn interest in savings-like accounts. The DeFi ecosystem is built on a layered architecture and highly composable building blocks. While some applications offer high interest rates, they carry high risks. Coding errors and hacks are a common challenge in DeFi.

<span class="mw-page-title-main">Dai (cryptocurrency)</span> Stablecoin cryptocurrency

DAI is a stablecoin token on the Ethereum blockchain which uses smart contracts designed to control supply to keep its value as close to one United States dollar as possible. DAI is maintained and regulated by MakerDAO, a decentralized autonomous organization composed of the owners of its governance token, MKR, who may propose and vote on changes to certain parameters in its smart contracts.

<span class="mw-page-title-main">Uniswap</span> Decentralized cryptocurrency exchange

Uniswap is a decentralized cryptocurrency exchange that uses a set of smart contracts to create liquidity pools for the execution of trades. It is an open source project and falls into the category of a DeFi product because it uses smart contracts to facilitate trades instead of a centralized exchange. The protocol facilitates automated transactions between cryptocurrency tokens on the Ethereum blockchain through the use of smart contracts. As of December 2024, Uniswap is estimated to be the second largest decentralized exchange and the seven-largest cryptocurrency exchange overall by daily trading volume.

<span class="mw-page-title-main">0x (decentralized exchange infrastructure)</span> Cryptocurrency

0x is an open-source, decentralized exchange infrastructure that enables the exchange of tokenized assets on multiple blockchains. Developers can use 0x to incorporate exchange functionality into their applications, and market makers can use 0x to create markets for cryptocurrencies and tokens. ZRX, an Ethereum ERC-20 token, is the native governance and staking token of 0x. Individuals who own ZRX can vote on protocol changes and stake their tokens to earn liquidity rewards in Ether (ETH). The project's creator and core developer is 0x Labs.

<span class="mw-page-title-main">Solana (blockchain platform)</span> Public blockchain platform

Solana is a blockchain platform which uses a proof-of-stake mechanism to provide smart contract functionality. Its native cryptocurrency is SOL.

<span class="mw-page-title-main">Polygon (blockchain)</span> Blockchain and cryptocurrency

Polygon is a blockchain platform which aims to create a multi-chain blockchain system compatible with Ethereum. As with Ethereum, it uses a proof of stake consensus mechanism for processing transactions on-chain. Polygon's native token is POL, an ERC-20 token which allows for compatibility with other Ethereum cryptocurrencies. It is operated by Polygon Labs.

Arkham Intelligence, branded Arkham, is a global company that operates a cryptocurrency exchange platform as well as a public data application that enables users to analyze blockchain and cryptocurrency activity. Founded by Miguel Morel in 2020, the company's platform utilizes AI to identify and catalog the owners of blockchain addresses. Its partners include various cryptocurrency and blockchain companies.

<span class="mw-page-title-main">Nikolai Mushegian</span> American computer scientist

Nikolai Mushegian was an American computer scientist and software engineer, best known for his contributions to software platforms supporting decentralized autonomous organizations and decentralized finance.

<span class="mw-page-title-main">PancakeSwap</span> Decentralized cryptocurrency exchange

PancakeSwap is a decentralized exchange (DEX) built on multiple blockchains. As of 2024, it is one of the major DEX on Binance Smart Chain and has more than $2.3B in total value locked.

Iron Finance was a decentralized finance (defi) protocol based on the Polygon blockchain.

References

  1. ↑ "What is Aave?". Messari. Retrieved 2025-01-27.
  2. ↑ "Aave's GHO Stablecoin Expands to New Networks". Binance. 2024-07-02. Retrieved 2025-01-27.
  3. ↑ Access the full power of DeFi, aave.com, retrieved 7 January 2025.
  4. 1 2 3 4 5 6 Pandl, Zach (2021-10-22). "Opportunities and Risks in Decentralized Finance (Pandl/Rosenberg)". Goldman Sachs Research. Archived from the original on 2022-03-27. Retrieved 2024-03-29.
  5. ↑ Ao, Ziqiao; Cong, Lin William; Horvath, Gergely; Zhang, Luyao (2022-02-02). "Is decentralized finance actually decentralized? A social network analysis of the Aave protocol on the Ethereum blockchain". Papers. arXiv.org. Retrieved 2024-03-29.
  6. 1 2 3 Allcot, Dawn (2023-02-09). "What Is Aave Crypto Protocol?". AOL.com. Archived from the original on 2024-03-29. Retrieved 2024-03-29.
  7. 1 2 Shen, Muyao (2023-07-15). "Biggest DeFi Lender Aave Set to Launch Decentralized Stablecoin". Bloomberg.com. Archived from the original on 2023-12-20. Retrieved 2024-03-29.
  8. ↑ Wade, Jacob (2022-11-15). "What Is Aave?". Investopedia. Archived from the original on 2024-03-29. Retrieved 2024-03-29.
  9. 1 2 3 4 5 6 Young, Sage D. (2023-01-24). "Aave Community Voting to Deploy Version 3 on Ethereum". markets.businessinsider.com. Archived from the original on 2024-03-29. Retrieved 2024-03-29.
  10. ↑ Chiu, Jonathan; Kahn, Charles M.; Koepp, Thorsten V. (October 11, 2022). "Grasping De(centralized) Fi(nance) Through the Lens of Economic Theory" (PDF). Bank of Canada. doi:10.34989/swp-2022-43. ISSN   1701-9397. Archived (PDF) from the original on April 4, 2024. Retrieved April 3, 2024.
  11. 1 2 Schiller, Ben (2023-12-04). "Stani Kulechov Defied Crypto Winter". markets.businessinsider.com. Retrieved 2024-11-06.
  12. ↑ "Institutional DeFi: The Next Generation of Finance?" (PDF). J.P. Morgan. 2022. Archived (PDF) from the original on 2024-10-07. Retrieved 2024-11-01.
  13. ↑ Lehar, Alfred; Parlour, Christine A. (2022). "Systemic Fragility in Decentralized Markets". SSRN Electronic Journal. Elsevier BV. doi:10.2139/ssrn.4164833. ISSN   1556-5068.
  14. ↑ Melinek, Jacquelyn (2022-03-23). "Despite declines, the value of crypto assets in DeFi protocols is up 3x from a year ago". TechCrunch. Archived from the original on 2024-03-29. Retrieved 2024-03-29.
  15. ↑ Gudgeon, Lewis; Werner, Sam; Perez, Daniel; Knottenbelt, William J. (2020-10-21). "DeFi Protocols for Loanable Funds". Proceedings of the 2nd ACM Conference on Advances in Financial Technologies. New York, NY, USA: ACM. pp. 92–112. doi:10.1145/3419614.3423254. ISBN   978-1-4503-8139-0.
  16. ↑ Ao, Ziqiao; Cong, Lin William; Horvath, Gergely; Zhang, Luyao (2022-02-02). "Is decentralized finance actually decentralized? A social network analysis of the Aave protocol on the Ethereum blockchain". Papers. arXiv.org. Archived from the original on 2024-01-12. Retrieved 2024-11-06.
  17. ↑ "Crypto Conversation: Aave 'LEND's Hand to Decentralized Finance Movement". TheStreet Crypto: Bitcoin and cryptocurrency news, advice, analysis and more. 2020-08-26. Archived from the original on 2024-03-29. Retrieved 2024-03-29.
  18. ↑ Eklund, Jesper (26 April 2022). "Stani Kulechov | Kryptomaailman avainhenkilöt #10". Coinmotion (in Finnish). Archived from the original on 10 July 2024. Retrieved 11 July 2024.
  19. 1 2 Nicolle, Emily; Kharif, Olga; Akhtar, Tanzeel; Miller, Hannah (2022-05-15). "Britain's Crypto List: Here Are the People to Watch". Bloomberg. Archived from the original on 2022-05-15. Retrieved 2024-03-29.
  20. ↑ "Stani Kulechov defied crypto winter". top-news.com.ua. Retrieved 2024-03-29.
  21. ↑ Melinek, Jacquelyn (2023-11-16). "Aave Companies rebrands to Avara and acquires crypto wallet Family to expand its web3 reach". TechCrunch. Archived from the original on 2024-03-29. Retrieved 2024-03-29.
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