Aave is an Ethereum blockchain-based decentralized lending mechanism. On this platform, you may lend and borrow bitcoins. The site has around 3.2 billion USD in cryptocurrency locked up. Although Aave was designed by a team of developers based mostly in London, it is decentralized and open source in the spirit of the hacker ethic. Anyone with enough AAVE may vote on how the platform is governed, according to a system known as "Aavenomics."
Aave is one of a several loan marketplaces that exploded in the summer of 2020. It competes with loan protocols like Compound and Maker. These are the three most important protocols in an industry worth more than 25 billion USD.
There is also a token in the protocol. Aave originally offered this as LEND and utilized the 16 million USD revenues from the inaugural sale in 2017 to support platform development. Aave will convert these LEND tokens into the platform's existing token, AAVE, in October 2020. AAVE is valued 266 USD as of January 2021, has a market valuation of 3.2 billion USD, and investors exchange more than 1 billion USD of the currency each day.
AAVE is an ERC-20 token, which means it is based on the Ethereum network. The token, unlike Ethereum or Bitcoin, cannot be mined. AAVE may be earned by purchasing it on exchanges and then staking it in the protocol's safety module. This implies that if depositors lose money, the AAVE can be sold to reimburse them.
Comparison with Bitcoin
In terms of market size, risk profile, and purpose, AAVE is vastly different from Bitcoin.
First and foremost, Aave (and its token, AAVE) operates on the Ethereum network. Bitcoin operates on its own, distinct blockchain: the Bitcoin blockchain. If Aave is analogous to a computer program, Bitcoin is analogous to an Apple iMac.
This implies that earning AAVE is not the same as earning Bitcoin. You may earn Bitcoin on the Bitcoin blockchain through Bitcoin mining, which entails setting up a highly powerful computer to run special software that solves complex arithmetic puzzles. You could mine Ethereum but not AAVE since the Ethereum blockchain processes AAVE transactions.
The effectiveness of the loan process that AAVE powers is crucial. The price of AAVE might drop if the Aave lending protocol fails or is vulnerable to hacking. The price of AAVE may rise if Aave and JPMorgan agree to offer crypto loans to all of their clients. Additionally, whereas Aave has only been operating for a short while and lending protocols are still novelties, Bitcoin has been around for almost ten years and is considerably more tried-and-true.
Even if AAVE is distinct from Bitcoin, it should be emphasized that the two are not entirely separate. The price of all other cryptocurrencies is significantly influenced by Bitcoin, the cryptocurrency with the largest market (by a wide margin). Because Bitcoin is the most popular token on the market, there is a strong risk that AAVE will also suffer if Bitcoin fails. AAVE's price may also suffer if Ethereum, the cryptocurrency that drives the blockchain on which AAVE is stored, fails. However, due to its magnitude, Bitcoin could be less vulnerable if AAVE collapses.
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Crypto assets as unregulated, decentralised and highly volatile assets entail substantial risks and you may lose all invested capital.
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