What Is Aave (AAVE)?
AAVE is the native token of the protocol of the same name. If you're wondering what the current AAVE price is, check out the AAVE price chart above. The DeFi protocol revolves around lending and borrowing crypto assets. Flash loans, which have been characterized as the first uncollateralized loan option in the DeFi industry, are one of Aave's signature products.
How does the lending and borrowing process work? Essentially, lenders deposit their crypto assets into liquidity pools that are dedicated specifically to that purpose. This way, lenders are able to earn profit that comes either from the interest paid on loans or flash loan fees.
After the assets are deposited into the pools, they can be used as collateral by borrowers who wish to obtain flash loans, which they will ultimately be required to repay within the same transaction.
Borrowers also have the option of choosing between fixed or variable interest rates. Fixed rates offer some price stability when the crypto market starts fluctuating. Variable rates, on the other hand, are advantageous when the borrower anticipates an upcoming price drop.
With the Aave v2 protocol update, a few new features were implemented in the protocol, including the collateral swap feature and loan repayment with collateral. Collateral swap allows users to swap their collateral at any time for another supported asset. Loan repayment with collateral allows borrowers to pay off their loan balances in full with their collateral in a single transaction.
The AAVE price tends to fluctuate a lot, making its volatility higher. However, it's a given, as the volatility of the entire crypto market affects the prices of most crypto assets.
The Story of Aave
When it first debuted in 2017, the name of the protocol was ETHLend. However, it was rebranded as Aave in 2018. Aave is a Finnish word that means "ghost," which explains the little ghosts you can see all over Aave's website. Besides, it illustrates the transparency and openness of the company. The main reason for rebranding the protocol was to go beyond lending ETH tokens.
The founder of Aave is Stani Kulechov. He is a serial entrepreneur and an early blockchain technology developer. Stani Kulechov started programming when he was only a teenager. Besides that, he went to law school.
Since its launch, the AAVE token has been shown to be volatile. In 2021, the AAVE price fluctuated between $85 at its lowest and $666 at its highest, with frequent movements upwards and downwards nearly daily.
The Purpose of AAVE Tokens
AAVE tokens have three main purposes:
- Governance token. AAVE holders are able to vote on the decisions considering the development of the protocol;
- A reward for staking. AAVE tokens can be earned through staking. Users can either directly stake AAVE or stake BPT (Balancer Pool Tokens) tokens to earn AAVE;
- Mitigation tool. The staked AAVE serves as insurance that will cover any shortcomings.
Tokenomics of AAVE
AAVE tokens are deflationary, meaning they have a fixed supply of 16 million tokens. Since AAVE coins are burnt whenever the system collects fees, the circulating supply correlates with the fixed supply. If you're planning to purchase AAVE coins, you should analyze the AAVE price chart.
In 2017, an initial AAVE coin offering (ICO) took place, during which one billion AAVE coins were sold. This way, around $16.2 million was collected. The AAVE price during the ICO was $0.0162. After the ICO, 23% of AAVE supply was dedicated to the protocol and its founders.
AAVE tends to follow the trends set by major cryptocurrencies, such as Bitcoin (BTC) and Ethereum (ETH). Therefore, before buying the asset, carefully research the current AAVE price and how it fluctuates. You should also keep an eye on the broader market sentiment.