Introduction Aave

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Aave is a decentralized cryptocurrency platform that allows users to borrow and lend crypto. Aave uses smart contracts to automate this process, with pre-defined rules for how money is distributed, contract management, and how debt is assessed. Aave is a specialist in lending money, which means that users will invest more crypto than the money they want to borrow.

This protects borrowers from losing money due to default and allows the Aave protocol to cancel the contract if the price falls too much. Aave also offers crypto tokens (AAVE) that can be traded on multiple exchanges or invested on the Aave platform to earn interest. Payments are how crypto miners get paid for supporting transactions on a proof-of-concept blockchain like the one that powers Aave.

The Origin

The origins of AAVE are still debated but there are two main theories:

The concept of dialect. Enslaved Africans in the British-ruled South of the United States learned English from their oppressors. This theory often excludes African influences on AAVE.

The Creole Concept. Modern AAVE is the result of a creole derived from English and various West African languages. According to the Oxford Dictionary, a creole is “a mother tongue formed from the contact of two languages” at an early stage. The Creole language is a natural language with a stable grammar that originates from the fusion of two languages ​​to form a new one.

There are many examples of creole languages ​​from African countries: Haitian Creole, Jamaican Creole, Louisiana Creole, Guyanese Creole, etc. Linguists draw grammatical differences between West African languages ​​and AAVE to support the Creole concept.

In the mid-twentieth century, the great migration of African Americans from the rural South of the United States to cities such as New York, Chicago, and Los Angeles carried AAVE across the country. It also created an opportunity for AAVE to develop regional differences.

How leading works on Aave

Traditionally, to get a loan, you have to go to a bank or other financial institution with a large sum of money. The bank will ask for approval – in the case of a car loan, that would be the title of the car itself – in exchange for money. You must pay the principal to the bank every month, plus interest.

DeFi is different. There is no bank. Instead, smart contracts (which are computer code that executes transactions, such as selling if the price of a token reaches a certain threshold) are leveraged. DeFi removes middlemen from asset exchanges, futures, and savings accounts.

In practice, this means that you can get loans – in cryptocurrency – from people rather than financial institutions. However, you still need to provide supporting documents. In the DeFi system that strives to be fiat-free, that means other cryptocurrency tokens. And because cryptocurrency is volatile, many DeFi platforms need limits. So, for a $500 crypto loan on Aave, you will need to invest more than that amount in a different cryptocurrency. If the price drops and the collateral amount no longer covers the amount you borrowed, your collateral may be liquidated, meaning the protocol takes it to cover the cost of your loan.

Aave currently has pools for 30 Ethereum-based assets, including stablecoins Tether, DAI, USD Coin, and Gemini dollar. Other marketplaces include Avalanche, Fantom, Harmony, and Polygon, among others.

Aave also provides a pool for real estate assets, such as real estate, freight and freight, and payment promotions. For these pools, a partner company called Centrifuge helps physical businesses to streamline certain aspects of their operations. Once marked, investors can buy (or hold as collateral) these tokens, which behave like bonds and get a return on their holding. So, these assets can be used as collateral by real investors to borrow money.

Although it often makes sense to buy or sell cryptocurrency, borrowing it can be better in some cases. One of the most obvious concerns arbitration. If you see a token trading with different rates and different exchanges, you can make money by buying it in one place and selling it again. However, since the differences are not likely to be small when factoring in the transaction costs are spread, you need to have a large chunk of cryptocurrency to make a real profit.

That’s where the Aave light loan comes in. Aave pioneered the use of flash loans, in which people borrow cryptocurrency without collateral, use it to buy property, sell in the currency, and then return the initial amount in one transaction after pocketing their value.