Overview
Aave is a decentralized lending protocol that allows users to supply and borrow crypto assets through algorithmically-set interest rates. Launched in January 2020 with the AAVE token, it is one of the largest lending markets in DeFi. Depositors earn interest, and borrowers can access capital without a credit check by providing collateral.
How It Works
Users supply assets to Aave's pools and receive aTokens that accrue interest in real time. Borrowers deposit collateral and take out loans against it, with loan-to-value ratios and liquidation thresholds enforced by smart contracts. Interest rates are determined by utilization, and the protocol supports features such as flash loans and stable rate borrowing. AAVE holders govern risk parameters and new asset listings.
Why It Matters
Aave is the reference implementation of decentralized lending, proving that credit markets can run without banks. Its risk framework, including liquidation and governance, is studied by every lending protocol. Its scale makes it a critical source of yield and a key component of the DeFi composability stack.
Related Concepts
Aave is a lending protocol built on Smart Contracts and Oracles for pricing. It offers Flash Loans and is governed by AAVE token holders, and it is a foundational piece of the broader DeFi ecosystem.