Buy Aave

Aave (AAVE) is a decentralised finance (DeFi) protocol that lets people lend and borrow crypto through smart contracts. It is one of the best-known lending protocols in the crypto ecosystem.

It helps to separate two names. Aave is the protocol and project, while AAVE is the cryptocurrency token used in its governance. People often use the names interchangeably, but you buy and hold AAVE, while Aave is the underlying DeFi protocol.

Instead of using a bank or broker, Aave uses smart contracts to manage lending and borrowing. Users can supply crypto to liquidity pools, while borrowers can access those pools by providing collateral. This means lending and borrowing happens directly through code on a blockchain, rather than through a traditional financial institution.

What is Aave used for?

Aave is mainly used for decentralised lending and borrowing. AAVE is the token used to help govern the Aave protocol and support its wider ecosystem.

AAVE is used to:

• vote on changes to the Aave protocol
• take part in Aave governance through Aave Improvement Proposals (AIPs)
• support the protocol’s Safety Module, where eligible users can stake AAVE

The Aave protocol works through liquidity pools. People who supply crypto to the protocol may earn interest, while borrowers can take out loans by locking up more collateral than they borrow. This is known as overcollateralised borrowing.

What is a flash loan?

A flash loan is a type of loan, pioneered by Aave, that is borrowed and repaid within a single blockchain transaction. Unlike normal loans, it does not require any collateral, but the borrowed amount must be paid back almost instantly in the same transaction. If it is not repaid, the entire transaction is cancelled, as if the loan never happened. Flash loans are mainly used by developers and advanced users for purposes such as arbitrage or moving funds between protocols, rather than by everyday borrowers.

Because Aave is part of DeFi, it comes with risks that are different from using a traditional lender. Smart contract bugs, market volatility and liquidation risk can all affect users. For example, if a borrower’s collateral falls too far in value, it may be sold automatically to repay the loan.

AAVE has a maximum supply of 16 million tokens. Unlike Bitcoin, AAVE is not mined. Its role is focused on governance and the operation of the Aave ecosystem, rather than processing transactions on its own blockchain.

The history of Aave

Aave began in 2017 as ETHLend, a peer-to-peer crypto lending project founded by Stani Kulechov. The project later rebranded as Aave, which means "ghost" in Finnish.

The Aave Protocol launched in 2020 and introduced a pool-based model for lending and borrowing, helping it become one of the leading protocols in decentralised finance. The original LEND token was later migrated to AAVE at a 100:1 ratio, creating the current AAVE governance token. You can find out more on the official Aave website.

Since launching, Aave has expanded across multiple blockchain networks and has become a major part of the DeFi ecosystem. People buy AAVE for many reasons, including taking part in governance, using the Aave ecosystem, or gaining exposure to decentralised finance.