2021-02-07 18:53:30
Decentralized finance protocol Aave (AAVE).
It was originally launched as ETHLend, a crypto asset lending platform that was founded in 2017 by Helsinki-based programmer, Stani Kulechov. The ETHLend initial coin offering (ICO) was held in November 2017 and raised $600,000 worth of ether (ETH) which was used to create 1 billion LEND tokens, among other things.
The name Aave comes from the Finnish word for “ghost,” and the protocol was rebranded to reflect this, in September 2018. The Aave protocol went live on mainnet in January 2020, supporting 16 assets, at the time. In July 2020, Aave announced a $3 million investment from Three Arrows Capital, Framework Ventures, and Parafi Capital.
2020 was a huge year for Aave as its total value locked surged over 560%, from around $300,000 to top $2 billion, by the end of the year. If that wasn’t impressive enough, its rebased AAVE token was the best performing DeFi asset of 2020, skyrocketing over 5,000% in value.
Flash loans and how it works.
The protocol enabled a customized smart contract to borrow assets from its reserve pools within one transaction on the condition that the liquidity is returned to the pool before the transaction ends. No collateral was needed which was a first for the largely over-collateralized DeFi sector, at the time.
If the collateral was not repaid, the transaction would be reversed to effectively undo the actions executed until that point, guaranteeing the safety of the funds in the reserve pool.
Flash loans got a really bad reputation in 2020, as they were repeatedly used to exploit a number of DeFi protocols. A flash loan exploit doesn’t necessarily involve a hack or broken code, it can simply take advantage of flaws in the design of a system.
Over the course of the year, a number of DeFi protocols were attacked using the flash loan vector, and these included bZx (twice), Balancer, Harvest Finance, Value Protocol, Pickle Finance, Warp Finance, and several others. Aave was not exploited and remains one of the more secure DeFi platforms.
Aave works with aTokens which are issued by the protocol to represent collateral deposited in a lending smart contract on a one-to-one basis. Lenders earn interest on these tokens which are burned when redeemed and the collateral is repaid. Deposits can be made in crypto assets or fiat through a number of wallet and payment partners.
Aave v2 upgrade
In December 2020, Aave continued hitting roadmap targets and upgraded its platform with a version two launch. The upgrade ushered in a number of significant improvements including the ability to repay part of the loan collateral without having to conduct multiple transactions, rolling this operation into one transaction to save in network fees, time, and effort for users.
Aave into 2021
The momentum for Aave did not end with the year and has pushed forward into 2021, as the protocol continues to innovate and forge new industry partnerships.
In January 2020, a year after it was launched, Aave released a migration tool enabling users to seamlessly migrate their positions from version 1 to the recently launched version 2. It added that version 1 contracts will remain on Ethereum, but the future of the protocol is now firmly with version 2.
Also in January, Aave launched the closest thing to its own Layer 2 scaling solution by allowing its aTokens to be ported to the Plasma powered Matic Network. The ultimate goal for the protocol, however, is full Layer 2 operations but that is likely to come with the next major upgrade.
Even institutional crypto funds such as Grayscale have been eyeing Aave for their next trusts indicating how much confidence has grown in the platform over the past year.
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