The option, known as “flash loans”, charges a rate of 0.35% on the requested amount. The platform works with 16 different assets, including five pegged cryptocurrencies.
In recent days, the Aave protocol began to work in the Ethereum mainnet. This tool allows users of the platform to request loans in cryptocurrencies without granting a security interest in exchange, according to the developers.
Aave is an open-source project specializing in decentralized finance (DeFi) services, founded in 2017 by Stani Kulechov. The protocol is focused on the deposit, exchange, and handling of cryptocurrencies, including additional services such as loans and interest rates for savings. Among the most prominent tools of the protocol are “flash loans”, a term with which the Aave board baptized its unsecured loans.
This type of service is known in the financial industry because, as the name implies, borrowers do not need to grant a security interest to the lender to receive money in return. In other words, the loan is accepted without the need for a good, asset or guarantor to secure the payment.
The Aave platform has a smart contract that establishes and guarantees the fulfillment of the loan terms for both parties. Each contract is personalized, indicating which and how many assets the reserve user will receive. The borrower receives cryptocurrencies by conducting a single transaction, which is conditioned by the payment of this loan within a given time. If this is not complied with, the transaction will be reversed and all the actions executed with the loan up to that point will be canceled.
Flash loans have a rate of 0.35% of the requested amount, a cost considerably higher than the normal loans of the platform, for which 0.025% is requested. The platform has about 16 different cryptocurrencies, five of which are pegged cryptocurrencies or stablecoins. Assets such as Ether (ETH), Dai (DAI), Basic Attention Token (BAT), USD Coin (USDC), Tether (USDT) and TrustToken (TUSD) are part of its ecosystem.
New DeFi Platform
In addition to flash loans, Aave also offers new models of interest rates and tokenization. The first is the “ATokens”, tokens that can be tokenized with a value of 1:1 on their active support. The developers assure that in this way users will be able to receive more profits since they will not depend on the exchange rate of the asset but its market value.
The “stable rate” is another new model of the interest rate of this platform. It allows all platform loans to have a fixed short-term rate, which can be rebalanced over the months based on market fluctuations. The developers say that this option will protect users from the volatility of the cryptocurrency market.
The protocol also has its price oracle, called Oracle Aave and powered by Chainlink. The tool allows calculating in a decentralized way new loan rates for the server and the users. In this way, the service uses about 16 different price rates to determine which one should be charged by the platform.
The DeFi platform will have a fully decentralized government and its own cryptocurrency, LEND. The board said that, despite still being in audit processes, they are working on a network that will be under the sole control of its users. The holders of LEND will be the ones making decisions about the governance of Aave in the future. However, as it is in its launch phase, the board will be responsible for managing the entire platform.
By Alexander Salazar