Aave is a decentralized finance protocol that allows users lend and borrow crypto. It uses smart contracts on the Ethereum blockchain to create a system where users can loan out their tokens to others and earn interest, or borrow to access extra liquidity. The platform is completely decentralized and managed by AAVE token holders that vote to upgrade or change the protocol.

Key elements of how AAVE works:

  • Unified liquidity pool: Lenders and borrowers interact with a single unified liquidity pool that holds all the tokens in the protocol and enjoy higher capital efficiency and better yields. All lent out tokens share the profits of all borrows while sharing the risk across all supported tokens.

  • Lending: Lenders receive aTokens, which represent their share of the pool. These aTokens generate interest over time, which is how lenders make a return on their deposit. These aTokens are transferable and users can move them around if needed or utilize them again.

  • Borrowing: Users can borrow any cryptocurrency that is available in the liquidity pool. The amount they can borrow is dependent on the LTV and cap of the supported collaterals. They have to pay interest on their loan, which is dynamically calculated by the protocol based on supply and demand. Borrowers can choose a stable or variable interest rate for their loan.

  • Decentralization and Smart Contracts: Aave's entire system is built on smart contracts. Utilizes Chainlink as oracle source to provide up-to-date prices

This is a basic overview of Aave. You can read more about supported functions of the protocol in Summer.fi, follow the tutorials to take advantage of AAVE support or ask questions in our discord

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