Aave V2

Lending

Aave is one of the largest decentralized money markets, allowing anyone to lend and borrow crypto assets across blockchains.

Risk Rating
Good
Protocol Code Quality
Protocol Maturity
Protocol Design
Summary
What we like
Aave V2 differentiated itself from other prominent lending protocols by supporting a wider range of assets to lend and borrow from and by pioneering new lending primitives including rate switching, collateral swap and flash loans.
What we like less
Aave V2 is exposed to more risks than its blue-chip counterparts given its more exotic assets and lower liquidation threshold. It also faces increased pressures from newer lending protocols with permissionless lending pools that better cater to long-tail assets.
What it means for you
Aave V2 remains one of the largest money market platforms to earn interest on your crypto assets across several alternative chains.
Information
Info
  • Website
  • Token: AAVE
  • Tags: Lending
Key Metrics
  • TVL: $2B (Rank #14)
  • TVL Ranking by Lending: #3
  • Blockchain: Ethereum, Polygon, Avalanche
  • Chain TVL
    • Ethereum: $1.91B
    • Polygon: $88.89M
    • Avalanche: $31.97M
Risk Assessment
Good
Protocol Code Quality
Protocol Maturity
  • Core protocol launched in 2020; maturity over one year minimizes technical risk as smart contracts are well battle-tested
  • Top 1% by total value locked reduces risk
  • Requires members of a DAO to vote on-chain for approving contract upgrades
  • Timelock is less than 48hrs, which provides users with less time to exit if any malicious upgrades are approved
  • Low voting power concentration reduces risk
Protocol Design
  • No death spiral concerns
  • Robust controls to mitigate oracle price manipulation
  • Cross-collateral markets are exposed to systemic risks as each asset creates incremental risks for the platform as a whole
  • Basic controls in place to prevent risky borrowing
  • Robust mechanisms in place to ensure healthy liquidations
  • Solid methods to accrue protocol reserves
  • Aave is one of the largest and oldest DeFi protocols that is well-trusted by DeFi investors
Things to know about Aave V2

How Aave V2 works

Aave consists of a decentralized system of lending pools. Users deposit assets they want to lend into a liquidity pool and borrowers draw from the pool when they want to take out a loan. Aave borrowers must first supply assets before they can borrow. Given the high volatility of crypto assets, borrowers must post more collateral than the value of the loan, or commonly referred to as overcollateralization. Interest rates on Aave are driven by market supply and demand. To facilitate this activity, Aave issues aTokens to lenders that reflect accruing interest on the underlying token.

How Aave V2 makes money

Aave currently has two income streams that accumulate to the ecosystem reserve to support the Aave DAO and pay protocol contributors. The first income stream comes from flash loans, which incur a 0.09% service fee. This service enables users to borrow any available amount of assets without posting any collateral, as long as the liquidity is returned to the protocol within the same transaction block. The second income stream comes from a reserve factor introduced in V2 that allocates a share of borrowers' fees to the ecosystem reserve. Each supported asset has a reserve factor that determines how much goes into the reserve.

How you make money on Aave V2

You earn lending fees on Aave by depositing your idle crypto assets to be used by borrowers looking for leverage. For newer markets, Aave also offers additional protocol incentives in its native AAVE token to bootstrap demand. You can further stake Aave in the safety module to backstop the protocol against bad debt to receive inflationary AAVE emissions.

Aave V2 Pools
Aave BTC Lending
0%
Yield
$2B
TVL
Risk
B
Protocol
Aave V2
Chain
Ethereum
Aave ETH Lending
1.6%
Yield
$513M
TVL
Risk
B
Protocol
Aave V2
Chain
Ethereum
Aave USD Lending
9.2%
Yield
$226M
TVL
Risk
B
Protocol
Aave V2
Chain
Ethereum
Aave USD Lending
8.9%
Yield
$212M
TVL
Risk
B
Protocol
Aave V2
Chain
Ethereum
Aave USD Lending
10.3%
Yield
$12M
TVL
Risk
B
Protocol
Aave V2
Chain
Ethereum