Aave

Aave (AAVE) is the governance token of the Aave Protocol, a non-custodial liquidity market that allows users to lend and borrow a wide range of crypto assets. The protocol launched on Ethereum and has since expanded to several Layer 2 networks and other Layer 1 chains, with each deployment maintaining its own market parameters.

Lenders deposit assets into shared liquidity pools and receive interest-bearing aTokens that accrue yield in real time. Borrowers post collateral and draw against it at variable or stable rates set algorithmically based on pool utilisation. The protocol introduced flash loans — uncollateralised loans that must be borrowed and repaid within a single transaction — which are widely used for arbitrage, collateral swaps and liquidations.

AAVE holders govern the protocol through onchain proposals, voting on asset listings, risk parameters, treasury allocations and protocol upgrades. The token can also be staked in the Safety Module, where it acts as a backstop against shortfall events in exchange for a share of protocol revenue. Within the broader landscape, Aave is one of the largest decentralised lending protocols and a core piece of decentralised finance infrastructure.

Decentralised lending protocols allow users to borrow and lend crypto assets through onchain liquidity pools, with interest rates set algorithmically rather than by intermediaries. Aave sits within this category as one of the largest deployments by total value locked. Readers tracking how onchain credit markets develop can explore broader trends across crypto and Web3.