ETHLend was founded in 2017 by Helsinki-based programmer Stani Kulekhov as a crypto asset lending platform. The ETHLend Initial Coin Offering raised $600,000 in ETH in November 2017 to issue one billion LEND tokens. In September 2018, the protocol’s name changed to Aave to reflect this. The Aave protocol launched on the mainnet in January 2020 and initially supported 16 assets.
By the end of 2020, Aave’s total fixed value had increased by 560 %, from $300,000 to $2,000,000,000. If that wasn’t enough, the redesigned AAVE token was the top DeFi asset for 2020. In addition, its value has increased by over 5,000 %. The protocol currently has around $4 billion in collateral and subjects to a number of audits and security reviews.
Flash Loans and Hot It Works
Smart contracts can borrow assets from the reserve pool and return them before the transaction is completed using this protocol. For the first time in the over-collateralized DeFi market at the time, no collateral was required. If the collateral is not repaid, the transaction is reversed, wiping out the previous transaction and protecting the reserve pool funds.
Due to its continued abuse of many DeFi protocols, flash lending will have a bad reputation in 2020. Flash loan exploits do not always require hacking or broken code and can take advantage of design flaws in the system.
This year, lending vectors attack a number of DeFi protocols. Balancer, Harvest Finance, Value Protocol, Pickle Finance, Warp Finance, and a few others were among them. Although Aave deprecated, it is still one of the most secure DeFi platforms available as of this writing.
Instant Credits are only a fraction of what Aave has to offer. Collateral providers can lock digital assets in various pools as a lending platform to earn interest. It works like a fixed-rate loan in the short term, but it may be changed to reflect substantial changes in market circumstances in the long run. Perpetual loans also give users the freedom to get liquidity from their deposits with no term or repayment schedule.
Aave works with a Token issued by the protocol to represent collateral deposited in smart credit contracts on a reciprocal basis. Lenders gain interest on these tokens, which then burn when redeeming the tokens and returning the collateral. You can deposit in crypto assets or fiat through various wallets and payment partners.
Aave tokenomics: Aavenomics
In July 2020, Founder Aave Kulekhov announced major changes to the protocol’s token economics. This includes massive depreciation and rebranding of tokens from LEND to AAVE. The so-called Aavenomics refresh proposal converted 100 LEND tokens to 1 AAVE token, with a maximum total supply limited from 1.3 billion to 16 million.
The first governance vote occurred at the end of September and passed by a 100% majority. Individual LEND holders might claim 13 million of the new general supply, with the rest held as an ecosystem reserve and used to fund protocol incentives as needed.
Also, a new security module makes it easier for people to hold on to their tokens. The staking pool now offers security incentives in addition to a share of the protocol cost for cultivating AAVE tokens.
Large investors began shifting their capital by mid-October 2020, and the new AAVE token traded at a premium of over $50. LEND was barely $0.02 at the start of 2020; thus, even with a 100x supply decrease and a new rebalancing price of $2, it’s up 2400%. The main goal was to make the protocol even more decentralized by using tokens to run it by Aavenomics, as with most DeFi systems.