What is Aave (AAVE)?
Aave (AAVE) is the governance token of the Aave Protocol, the largest decentralized lending and borrowing platform in DeFi. Built on Ethereum and deployed across multiple chains, Aave enables users to lend crypto assets to earn interest or borrow against their holdings through smart contracts, without intermediaries. Aave pioneered flash loans and has become a cornerstone of decentralized finance.
Key Facts
What is Aave?
Aave is a decentralized, non-custodial lending and borrowing protocol built on Ethereum and deployed across multiple blockchain networks. Users can deposit crypto assets to earn interest or borrow against their collateral through smart contracts, without requiring banks, credit checks, or intermediaries. Aave pools are completely transparent and auditable on-chain.
Aave pioneered flash loans — a revolutionary DeFi primitive that allows users to borrow any amount of available liquidity with zero collateral, as long as the loan is repaid within a single transaction. This innovation has enabled entirely new categories of DeFi strategies including arbitrage, liquidation assistance, and collateral swaps.
The AAVE token governs the Aave Protocol, with holders voting on risk parameters, new asset listings, protocol upgrades, and treasury management. AAVE can also be staked in the Safety Module to earn rewards while providing backstop insurance against protocol shortfall events. With over $10 billion in total value locked, Aave is the dominant force in decentralized lending.
Who Created Aave? A Brief History
From ETHLend to Aave
Aave was founded by Stani Kulechov, a Finnish law student who became interested in Ethereum and decentralized finance. In 2017, Kulechov launched ETHLend, a peer-to-peer lending platform on Ethereum where borrowers and lenders were matched directly. ETHLend raised 40,000 ETH in an ICO in November 2017. While the concept was innovative, the peer-to-peer model struggled with liquidity and usability.
The Pivot to Pooled Lending
In 2018, the team rebranded from ETHLend to Aave (Finnish for 'ghost') and fundamentally redesigned the protocol. Instead of matching individual lenders and borrowers, Aave V1 introduced pooled lending — users deposit into shared liquidity pools and earn interest proportional to their share. This model solved the liquidity problem and became the standard for DeFi lending.
Aave V1 launched in January 2020 and quickly became one of the largest DeFi protocols.
Key Milestones
- • 2017: ETHLend launches on Ethereum; raises 40,000 ETH in ICO.
- • 2020: Rebranded as Aave; V1 launches with pooled lending model in January.
- • 2020: Aave V2 launches in December with features like flash loan V2, credit delegation, and debt tokenization.
- • 2022: Aave V3 launches with cross-chain portals, efficiency mode, and isolation mode for risk management.
- • 2023: GHO stablecoin launches on Ethereum mainnet, backed by Aave collateral.
- • 2024: Aave V4 proposal announced with unified liquidity layer; protocol surpasses $10B TVL across all chains.
Governance: AAVE Token Holders
Aave governance is managed by AAVE token holders who submit and vote on Aave Improvement Proposals (AIPs). Governance controls risk parameters, new asset listings, protocol upgrades, and a treasury worth hundreds of millions. The governance model uses a two-step process: a Snapshot vote for temperature checks followed by an on-chain vote for execution.
How Aave Works
Aave operates as a set of interconnected liquidity pools where lenders earn interest and borrowers access capital against their collateral.
Lending and aTokens
When users deposit assets into Aave, they receive aTokens (e.g., aUSDC for USDC deposits). These aTokens represent the user's share of the liquidity pool and automatically accrue interest in real-time — your aToken balance increases every second. Interest rates are variable by default, determined algorithmically based on the utilization rate of each pool.
When a pool is highly utilized (lots of borrowing), interest rates rise to attract more deposits.
Borrowing and Collateral
To borrow on Aave, users first deposit collateral (e.g., ETH, WBTC). They can then borrow other assets up to their collateral's loan-to-value (LTV) ratio — typically 60-80% depending on the asset. If the value of collateral falls below the liquidation threshold, anyone can liquidate the position by repaying part of the debt and receiving the collateral at a discount.
Aave V3 introduced efficiency mode (e-mode) for correlated assets (e.g., ETH/stETH), allowing up to 97% LTV.
Flash Loans
Flash loans allow borrowing any amount of available liquidity without collateral, provided the loan is repaid within the same transaction. If repayment fails, the entire transaction reverts as if nothing happened. Aave charges a 0.05% fee on flash loans (waived for flash borrowers using Aave as collateral).
Flash loans are used by developers and arbitrageurs for liquidations, collateral swaps, self-liquidation, and cross-protocol arbitrage.
Rate Switching
Aave V3 allows borrowers to switch between stable and variable interest rates at any time. Variable rates change dynamically based on pool utilization, while stable rates provide predictability for borrowers who want to lock in a rate. This flexibility lets borrowers optimize their cost of borrowing based on market conditions.
Safety Module Staking
The Safety Module is Aave's insurance mechanism. AAVE holders can stake their tokens in the Safety Module to earn Safety Incentives (additional AAVE). In return, up to 30% of staked AAVE can be slashed if the protocol experiences a shortfall event (bad debt exceeding protocol reserves).
This mechanism aligns AAVE holders' interests with the protocol's solvency and provides a decentralized insurance layer.
GHO Stablecoin
stkAAVE holders receive a discount on GHO borrowing rates. You can supply collateral to Aave, mint GHO at a discounted rate, and use the stablecoin for payments, yield farming, or trading — all while maintaining your AAVE stake and governance participation.
Aave vs Other Lending Protocols
Aave competes with other decentralized lending protocols, each with different approaches to lending, governance, and risk management.
| Feature | Aave | Compound | MakerDAO |
|---|---|---|---|
| Lending Model | Pooled lending (supply & borrow any asset) | Pooled lending (supply & borrow) | Vault-based (borrow DAI against collateral) |
| Flash Loans | Yes (pioneered) | No | Yes (flash mint) |
| Rate Model | Variable + stable rates (switchable) | Variable rates only | Stability fee (governance-set) |
| Multi-chain | 10+ chains | Ethereum + select chains | Ethereum only |
| Native Stablecoin | GHO | None | DAI / USDS |
| Staking Insurance | Safety Module (AAVE staking) | None | MKR dilution auction |
Aave's advantages are its multi-chain deployment, flash loan innovation, and the Safety Module insurance mechanism. Compound offers a simpler model with proven reliability. MakerDAO focuses specifically on stablecoin issuance rather than general lending. Aave's breadth of features and chain coverage has made it the largest DeFi lending protocol by total value locked.
Why Aave Has Value
AAVE derives value from its governance power over the dominant decentralized lending protocol. With over $10 billion in total value locked across multiple chains, Aave generates significant revenue from borrowing interest and flash loan fees. AAVE holders control the protocol's risk parameters, new asset listings, and a substantial treasury.
The ability to influence how the largest DeFi lending market operates makes AAVE governance power genuinely valuable.
The Safety Module creates a direct staking utility for AAVE. Stakers earn rewards for providing insurance backstop to the protocol, and the slashing mechanism ensures alignment between stakers and protocol health. GHO, Aave's native stablecoin, adds another value driver — stkAAVE holders receive discounted GHO borrowing rates, creating demand for both staking and the token itself.
Aave's multi-chain strategy positions it to capture lending demand across the entire DeFi ecosystem. Each new chain deployment increases the protocol's reach and fee generation. With V4 proposing a unified liquidity layer, Aave could further consolidate its dominance by enabling seamless cross-chain lending. The fixed supply of 16 million AAVE, combined with growing protocol revenue and expanding utility, creates a compelling value proposition.
How to Buy Aave
AAVE is widely available on major centralized exchanges and decentralized platforms.
1Compare providers
Use coinvela to compare AAVE prices and fees across exchanges. Coinbase, Kraken, and Binance offer competitive rates. AAVE is also available on decentralized exchanges like Uniswap.
2Create an account
Sign up with your chosen exchange and complete identity verification (KYC). Enable two-factor authentication for account security.
3Fund your account
Deposit funds via bank transfer, credit/debit card, or cryptocurrency. If using a DEX, you will need ETH in your wallet to swap for AAVE.
4Buy AAVE
Navigate to the AAVE trading pair (e.g., AAVE/USD or AAVE/USDT) and place your order. Market orders execute instantly; limit orders let you set a target price.
5Store & Stake
Transfer AAVE to a personal wallet for self-custody. Consider staking in the Safety Module to earn rewards while backstopping the protocol.
Next step: Compare AAVE exchange rates and fees to find the best price.
How to Store Aave
Wallet Types for AAVE
AAVE is an ERC-20 token compatible with any Ethereum wallet:
- • Software Wallets: MetaMask, Coinbase Wallet, Rainbow, or Rabby. Essential for interacting with Aave governance and the Safety Module.
- • Hardware Wallets: Ledger or Trezor for maximum security. Best for long-term holding and governance participation.
- • Exchange Wallets: Keep AAVE on a regulated exchange like Coinbase or Kraken for easy trading. Convenient but you don't control the private keys.
Hardware Wallets
For maximum security, use a Ledger or Trezor hardware wallet. These keep your private keys offline while still allowing you to interact with Aave's governance and Safety Module through wallet connections like MetaMask.
Staking While Storing
AAVE can be staked in the Safety Module directly from your wallet. Staked AAVE (stkAAVE) earns Safety Incentives while providing insurance backstop to the protocol. You can participate in governance with stkAAVE and receive discounted GHO borrowing rates. Note the 20-day cooldown period when unstaking.
Protect Your Recovery Phrase
Your seed phrase is the only way to recover your AAVE tokens if your device is lost. Write it down on paper and store it securely — never digitally or online. If you lose your seed phrase and your device, your AAVE and any staked positions will be permanently inaccessible.
How to Use Aave (AAVE)
Governance Voting
AAVE holders can participate in Aave governance by voting on Aave Improvement Proposals (AIPs). Proposals cover risk parameter changes, new asset listings, protocol upgrades, and treasury allocations. Governance uses a two-step process: Snapshot temperature checks followed by on-chain binding votes.
Safety Module Staking
Stake AAVE in the Safety Module to earn Safety Incentives (AAVE rewards) while providing insurance backstop to the protocol. Staked AAVE (stkAAVE) can be used in governance and provides a discount on GHO borrowing rates. Note the 20-day cooldown period for unstaking.
Lending and Borrowing
While AAVE itself is a governance token, it can also be supplied to Aave markets to earn interest. You can also use AAVE as collateral to borrow other assets. The Aave Protocol supports dozens of assets across multiple chains with competitive interest rates.
Trading AAVE
AAVE is actively traded on major centralized exchanges (Coinbase, Kraken, Binance) and decentralized exchanges (Uniswap, SushiSwap). The token's price reflects market sentiment around DeFi lending, protocol revenue growth, and governance activity. AAVE/ETH and AAVE/USDT are the most liquid trading pairs.
Risks
AAVE carries risks including: smart contract vulnerabilities across multiple chain deployments, Safety Module slashing risk (up to 30% of staked AAVE can be lost in a shortfall event), governance attack potential from concentrated holdings, competition from other lending protocols, regulatory uncertainty around DeFi lending (SEC scrutiny of DeFi), and the inherent risk of protocol insolvency during extreme market events despite safety mechanisms.
Notable People Behind Aave
Aave was built by a team of DeFi pioneers who helped establish the decentralized lending category.
Stani Kulechov
Founder and CEO of Aave Labs. A Finnish law student turned DeFi pioneer, Kulechov launched ETHLend in 2017 and pivoted to the pooled lending model that became Aave. He has led the protocol through four major versions, the launch of GHO stablecoin, and expansion to 10+ chains, making Aave the largest decentralized lending protocol in existence.
Jordan Lazaro Gustave
COO of Aave Labs. Has been instrumental in Aave's operational growth, strategic partnerships, and regulatory engagement. Helps lead the company's expansion into new markets and chains.
Ernesto Boado
Founder of BGD Labs, one of the primary technical contributors to Aave governance proposals and protocol upgrades. Has been deeply involved in Aave V3 development, governance tooling, and cross-chain deployment coordination.
Marc Zeller
Head of Integration at Aave and founder of the Aave Chan Initiative (ACI), a prominent governance delegate. Zeller is one of the most active governance participants, submitting and championing key protocol proposals and serving as a bridge between the community and the development team.
Regulation Overview for Aave
Regulatory Overview
Aave, as a decentralized lending protocol, faces evolving regulatory scrutiny. DeFi lending platforms operate without traditional banking licenses, raising questions about how they fit within existing financial regulations. The AAVE governance token and the protocol's non-custodial nature present unique regulatory considerations.
Regulation by Country
AAVE's regulatory treatment varies by jurisdiction:
United States: AAVE is available on major US exchanges including Coinbase and Kraken. The SEC has been increasing scrutiny of DeFi protocols, and lending platforms specifically. Aave Labs has proactively engaged with regulators and offers a separate, permissioned version (Aave Arc) for institutional users.
Canada: AAVE is available on regulated Canadian exchanges. Canadian regulators have taken a measured approach to DeFi, and AAVE is accessible through compliant platforms. Standard capital gains taxes apply.
European Union: Under MiCA, AAVE as a governance token is subject to general crypto-asset requirements. The EU's approach to DeFi protocol regulation remains in development. Aave's European roots (founded in Finland) and proactive regulatory engagement may provide some advantages.
Australia: AAVE is available on Australian exchanges regulated by AUSTRAC. ASIC is monitoring DeFi developments but has not taken specific action against lending protocol governance tokens.
DeFi lending regulation is one of the most actively evolving areas of crypto regulation. Aave's non-custodial, smart contract-based model challenges traditional regulatory frameworks designed for centralized lenders. AAVE holders should monitor regulatory developments, particularly around DeFi lending classification and stablecoin regulation affecting GHO.
DAO Governance and Compliance
Aave's governance structure as a DAO (Decentralized Autonomous Organization) presents unique compliance challenges. The protocol is governed by AAVE token holders who vote on proposals, with no central entity making decisions. This decentralized governance model raises questions about liability, accountability, and regulatory compliance.
Aave has taken steps to address these concerns through Aave Arc (a permissioned deployment for institutional users) and active engagement with regulators across jurisdictions.
FAQs About Aave (AAVE)
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