Draft:Aave

Aave Protocol allows anyone with a cryptocurrency wallet to supply and borrow digital assets across Ethereum, Optimism, Base, Polygon, Avalanche, and other EVM-compatible blockchains by posting collateral, without third-party intermediaries such as banks and brokerages.{{cite web|url=https://publications.gc.ca/collections/collection_2022/banque-bank-canada/FB3-5-2022-43-eng.pdf|title=Grasping De(centralized) Fi(nance) Through the Lens of Economic Theory|first1=Jonathan|last1=Chiu|first2=Charles M.|last2=Kahn|first3=Thorsten V.|last3=Koepp|publisher=Bank of Canada|doi=10.34989/swp-2022-43|issn=1701-9397|date=October 11, 2022|access-date=April 3, 2024|archive-date=April 4, 2024|archive-url=https://web.archive.org/web/20240404164710/https://publications.gc.ca/collections/collection_2022/banque-bank-canada/FB3-5-2022-43-eng.pdf|url-status=live}} Suppliers share the interest paid by borrowers, who deposit cryptocurrency assets into different liquidity pools. In turn, suppliers can use their cryptocurrency assets as collateral to borrow at stable or variable interest rates. There are currently three versions of Aave, each of which implemented upgrades to the decentralized protocol: V1, V2 and V3.{{cite web|last=Young|first=Sage D.|title=Aave Community Voting to Deploy Version 3 on Ethereum|website=markets.businessinsider.com|date=2023-01-24|url=https://markets.businessinsider.com/news/currencies/aave-community-voting-to-deploy-its-v3-on-ethereum-1032038176|access-date=2024-03-29|archive-date=2024-03-29|archive-url=https://web.archive.org/web/20240329150429/https://markets.businessinsider.com/news/currencies/aave-community-voting-to-deploy-its-v3-on-ethereum-1032038176|url-status=live}}

Version 3 of the protocol, Aave v3, went live in 2023 with lower transaction fees and the ability to supply and borrow across virtually all Layer 2 blockchains that use Ethereum as a settlement layer.{{cite web|title=Institutional DeFi: The Next Generation of Finance?|url=https://www.jpmorgan.com/onyx/documents/Institutional-DeFi-The-Next-Generation-of-Finance.pdf|date=2022|website=J.P. Morgan|access-date=2024-11-01|archive-date=2024-10-07|archive-url=https://web.archive.org/web/20241007103056/https://www.jpmorgan.com/onyx/documents/Institutional-DeFi-The-Next-Generation-of-Finance.pdf|url-status=live}}

In October 2021, Aave reached approximately $28 billion in Total Value Locked (TVL) across multiple chains, including Ethereum, Polygon, and Avalanche.{{cite web|last=Melinek|first=Jacquelyn|title=Despite declines, the value of crypto assets in DeFi protocols is up 3x from a year ago|website=TechCrunch|date=2022-03-23|url=https://techcrunch.com/2022/03/23/despite-declines-the-value-of-crypto-assets-in-defi-protocols-is-up-3x-from-a-year-ago/|access-date=2024-03-29|archive-date=2024-03-29|archive-url=https://web.archive.org/web/20240329150429/https://techcrunch.com/2022/03/23/despite-declines-the-value-of-crypto-assets-in-defi-protocols-is-up-3x-from-a-year-ago/|url-status=live}} A 2022 academic paper examined collateral liquidations on Aave, where arbitrageurs repay loans in exchange for discounted collateral, often using flash loans. By analyzing blockchain data, it highlights the price effects of these liquidity trades on decentralized exchanges and demonstrates both temporary and permanent impacts on asset prices.{{cite journal | last1=Lehar | first1=Alfred | last2=Parlour | first2=Christine A. | title=Systemic Fragility in Decentralized Markets | journal=SSRN Electronic Journal | publisher=Elsevier BV | year=2022 | issn=1556-5068 | doi=10.2139/ssrn.4164833}}

The Aave Protocol is governed by AAVE token holders who form the Aave Decentralized Autonomous Organization (DAO).

A study by Gudgeon et al (2020) reviewed the methodologies for setting interest rates in DeFi protocols for loanable funds (PLFs), which are decentralized markets using distributed ledgers and smart contracts to facilitate borrowing and saving, with interest rate mechanisms balancing supply and demand. The study reviewed the methodologies for setting interest rates in three major DeFi PLFs,{{which|date=January 2025}} empirically analyzing their behavior under varying liquidity conditions and investigating the relationships between interest rates across different protocols using a Vector Error Correction Model{{what|date=January 2025}}.{{cite conference | last1=Gudgeon | first1=Lewis | last2=Werner | first2=Sam | last3=Perez | first3=Daniel | last4=Knottenbelt | first4=William J. | title=Proceedings of the 2nd ACM Conference on Advances in Financial Technologies | chapter=DeFi Protocols for Loanable Funds | publisher=ACM | publication-place=New York, NY, USA | date=2020-10-21 | pages=92–112 | doi=10.1145/3419614.3423254| isbn=978-1-4503-8139-0 }}

A study by Ao et al. (2022) applied social network analysis to measure decentralization in DeFi token transactions on the Ethereum blockchain, focusing on the AAVE token. It found a core-periphery structure{{what|date=January 2025}} in the transaction network, with centralized exchanges at the core, and reportedly demonstrated that greater decentralization was associated with higher returns and lower volatility in AAVE markets.{{cite arXiv | eprint=2206.08401 | title=Is decentralized finance actually decentralized? A social network analysis of the Aave protocol on the Ethereum blockchain | last1=Ao | first1=Ziqiao | last2=Cong | first2=Lin William | last3=Horvath | first3=Gergely | last4=Zhang | first4=Luyao | date=2022 | class=econ.GN }}

The Aave Protocol was founded and released on Ethereum mainnet in January 2020 by Aave Labs founder Stani Kulechov,{{cite web|title=Crypto Conversation: Aave 'LEND's Hand to Decentralized Finance Movement|website=TheStreet Crypto: Bitcoin and cryptocurrency news, advice, analysis and more|date=2020-08-26|url=https://www.thestreet.com/crypto/investing/crypto-conversation-aave-lends-hand-to-decentralized-finance-movement|access-date=2024-03-29|archive-date=2024-03-29|archive-url=https://web.archive.org/web/20240329150429/https://www.thestreet.com/crypto/investing/crypto-conversation-aave-lends-hand-to-decentralized-finance-movement|url-status=live}} Russian-born Finnish programmer and lawyer who had moved to Finland with his family as a child.{{Cite web |url=https://coinmotion.com/fi/kryptomaailman-avainhenkilot-10-stani-kulechov/ |title=Stani Kulechov {{!}} Kryptomaailman avainhenkilöt #10 |last=Eklund |first=Jesper |date=26 April 2022 |website=Coinmotion |language=fi |access-date=11 July 2024 |archive-date=10 July 2024 |archive-url=https://web.archive.org/web/20240710225353/https://coinmotion.com/fi/kryptomaailman-avainhenkilot-10-stani-kulechov/ |url-status=live }}{{cite web |last=Schiller|first=Ben |title=Stani Kulechov Defied Crypto Winter |website=markets.businessinsider.com |date=2023-12-04 |url=https://markets.businessinsider.com/news/currencies/stani-kulechov-defied-crypto-winter-1032870750 |access-date=2024-11-06}} {{Lang|fi|Aave}} means "ghost" in Finnish, which speaks to the transparent aspect of the decentralized open source protocol.{{cite web|last1=Nicolle|first1=Emily|last2=Kharif|first2=Olga|last3=Akhtar|first3=Tanzeel|last4=Miller|first4=Hannah|title=Britain's Crypto List: Here Are the People to Watch|website=Bloomberg|date=2022-05-15|url=https://www.bloomberg.com/news/features/2022-05-15/britain-s-crypto-list-here-are-the-people-to-watch|access-date=2024-03-29|archive-date=2022-05-15|archive-url=https://web.archive.org/web/20220515092639/https://www.bloomberg.com/news/features/2022-05-15/britain-s-crypto-list-here-are-the-people-to-watch|url-status=live}}{{cite web|url=https://top-news.com.ua/novyny/stani-kulechov-defied-crypto-winter/|title=Stani Kulechov defied crypto winter|website=top-news.com.ua|access-date=2024-03-29}}{{Dead link|date=February 2025 |bot=InternetArchiveBot |fix-attempted=yes }}

Aave was preceded by ETHLend, also developed by Kulechov, which launched in 2017.{{cite web|last=Melinek|first=Jacquelyn|title=Aave Companies rebrands to Avara and acquires crypto wallet Family to expand its web3 reach|website=TechCrunch|date=2023-11-16|url=https://techcrunch.com/2023/11/16/aave-companies-rebrands-to-avara-and-acquires-crypto-wallet-family-to-expand-its-web3-reach/|access-date=2024-03-29|archive-date=2024-03-29|archive-url=https://web.archive.org/web/20240329150430/https://techcrunch.com/2023/11/16/aave-companies-rebrands-to-avara-and-acquires-crypto-wallet-family-to-expand-its-web3-reach/|url-status=live}}

In July 2023, Aave released GHO, an Aave-native, decentralized stablecoin. GHO is backed by assets available in the Aave Protocol.

Below is a list of relevant peer-reviewed journal publications that discuss Aave Protocol.

• {{cite arXiv|eprint=2206.08401 |title=Is decentralized finance actually decentralized? A social network analysis of the Aave protocol on the Ethereum blockchain |last1=Ao |first1=Ziqiao |last2=Cong |first2=Lin William |last3=Horvath |first3=Gergely |last4=Zhang |first4=Luyao |date=2022 |class=econ.GN }}
• {{cite book|last1=Heimbach|first1=Lioba|last2=Schertenleib|first2=Eric|last3=Wattenhofer|first3=Roger|title=Lecture Notes in Computer Science|chapter=Short Squeeze in DeFi Lending Market: Decentralization in Jeopardy?|publisher=Springer Nature Switzerland|publication-place=Cham|date=2023-12-05|isbn=978-3-031-48805-4|doi=10.1007/978-3-031-48806-1_22}}
• {{cite book|last1=Green|first1=Aaron|last2=Giannattasio|first2=Michael|last3=Wang|first3=Keran|last4=Erickson|first4=John S.|last5=Seneviratne|first5=Oshani|last6=Bennett|first6=Kristin P.|title=Lecture Notes in Operations Research|chapter=Characterizing Common Quarterly Behaviors in DeFi Lending Protocols|publisher=Springer Nature Switzerland|publication-place=Cham|date=2023|isbn=978-3-031-48730-9|doi=10.1007/978-3-031-48731-6_4}}
• {{cite conference|last1=Gudgeon|first1=Lewis|last2=Werner|first2=Sam|last3=Perez|first3=Daniel|last4=Knottenbelt|first4=William J.|title=Proceedings of the 2nd ACM Conference on Advances in Financial Technologies|publisher=ACM|publication-place=New York, NY, USA|date=2020-10-21|doi=10.1145/3419614.3423254}}
• {{cite journal|last1=Lehar|first1=Alfred|last2=Parlour|first2=Christine A.|title=Systemic Fragility in Decentralized Markets|journal=SSRN Electronic Journal|date=2022|issn=1556-5068|doi=10.2139/ssrn.4164833}}
• {{cite conference|last1=Gudgeon|first1=Lewis|last2=Perez|first2=Daniel|last3=Harz|first3=Dominik|last4=Livshits|first4=Benjamin|last5=Gervais|first5=Arthur|title=2020 Crypto Valley Conference on Blockchain Technology (CVCBT)|publisher=IEEE|date=2020|doi=10.1109/cvcbt50464.2020.00005|arxiv=2002.08099}}

{{reflist}}

• {{official website|https://aave.com/}}

{{Ethereum}}

{{Cryptocurrencies}}

:Category:Decentralized autonomous organizations

:Category:Decentralized finance

:Category:Cryptocurrencies

:Category:Ethereum-based protocols

:Category:Software developed in Finland

{{Drafts moved from mainspace|date=February 2025}}