Qu'est-ce que Aave (AAVE) ?

Aave is a lending protocol based on lending pools, where users can deposit cryptos into and lend cryptos out of the pool (similar to the principle of Compound), without the need for a one-to-one matching between lenders and borrowers. In addition to basic lend & borrow, the platform also supports flash loans (no-collateral loans) and fixed and floating rate conversions. The participants of the platform can be simply divided into lenders (depositors), borrowers and liquidators.

1. Lending Pool for lenders and borrowers

Each lending pool can have different types of tokens in it, and the total value of all assets expressed in ETH is the Total Liquidity of the lending pool. Each pool has an LTV (Loan-To-Value) metric, which is a weighted average of the LTV of the different assets. Each time the asset value in the pool change, the smart contract updates the pool's data and interest rate.

Lenders deposit funds they wish to lend, which are then collected into a liquidity pool, and then received an Aave interest-bearing tokens (aTokens for short) as representative and liquid asset. Borrowers may then draw from those pools when they take out a loan. Meanwhile, borrowers can choose whether they want variable or fixed interest rate. A variable interest rate will depend on the utilization rate of the pools. The higher the utilization rate, the higher the price of the interest rate.

2. Aave's interest-bearing tokens (aTokens)

Aave interest-bearing tokens (aTokens for short) are minted upon deposit and burned when redeemed. The aTokens are pegged 1:1 to the value of the underlying asset that is deposited in Aave protocol. aTokens provide holders with discounted fees on the platform, and it also serves as a governance token — giving owners a say in the future development of the protocol.

3. Flash loans

Aave allows certain loans, called “flash loans,” to be instantly issued and settled. These loans require no upfront collateral and happen almost instantly.

Flash loans take advantage of a feature of all blockchains, which is that transactions are only finalized when a new bundle of transactions, known as a block, is accepted by the network.

Adding each new block takes time. On Bitcoin, that interval is roughly 10 minutes. On Ethereum, it’s 13 seconds. An Aave flash loan therefore takes place in that 13-second period.

The flash loan works like this: A borrower can request funds from Aave, but they must pay back those funds, and a 0.09% fee, within the same block. If the borrower doesn’t do this, the entire transaction is cancelled, so that no funds were ever borrowed.

As a result, Aave doesn’t take a risk and neither does the borrower.

A borrower may wish to use a flash loan to take advantage of trading opportunities or maximize profits from other systems built on Ethereum. It’s possible to swap different cryptocurrencies in an automatic way using flash loans to generate trading profits.

Note: Flash loans have been combined to execute attacks on lending systems built on Ethereum, sometimes successfully stealing hundreds of thousands of dollars worth of deposits.