Should You Invest In Aave Crypto?

Jon Stojan
·4 min read

Aave, an Ethereum-based permissionless lending protocol, drove Decentralized Finance (DeFI) in 2020. DeFi’s second largest lending protocol, AAVE, has a value locked of $5.59 billion, making it the biggest. Through the AAVE token, the community controls the project.

What is Aave crypto?

Aave crypto price connects borrowers and lenders through a decentralized lending protocol on Ethereum. Smart contracts let permissionless lending happen without relying on a centralized entity. Crypto investors can get interested without having to deal with banks.

There’s no one interest rate for every asset on Aave. You earn money proportionally to the value of your help. APY or APR is the interest rate on these assets. APR is a clean annual percentage yield, whereas APY is compounded.

There are smart contracts that control Aave’s APYs and APRs. Over-collateralized assets get a lower rate, while under-collateralized purchases get a higher rate, and supply and demand determine those categories.

Why is Aave a good investment?

The Aave protocol is the second biggest DeFi protocol in crypto, and Aave lets investors borrow and lend assets in Ethereum’s DeFi ecosystem. Here is why AAVE is a good investment.

  • Open-source

You can find all the code on the Aave platform. Its security has been audited several times. You can audit the smart contracts if you need more clarification about the project’s safety.

Since you know how open-source protocols work and what actions lead to what results, such projects are transparent, safe, and hard to manipulate. In addition, there are no hidden costs.

Aave is an open-source DeFi project, so everyone can inspect its smart contracts because it is a public DeFi project. DeFi is about decentralizing financial instruments. Because thousands of developers watch over it, you will know if the protocol gets exploited.

  • Strong tokenomics

AAVE’s tokenomics is different. VCs and private investors bought only a small fraction of the token supply. At one point, the team decided to reserve 3 million tokens (token supply is 13 million AAVE).

The initial distribution of AAVE was divided into five parts:

  • Development core: 30%

  • Development of user experiences: 20%

  • Legal and management: 20%

  • Marketing and promotion: 20%

  • Miscellaneous costs: 10%

As you can see, most of the tokens went to marketing and development. Investors got 77%, while founders got 23%. Plus, AAVE has a lot of locked code. To vote on governance proposals or propose new ones, you must temporarily lock your tokens. You can stake or stake with AAVE tokens.

AAVE also locks up tokens. Those who stake in the Safety Module ensure the protocol is secure in case of a shortfall. Shortfalls happen when liquidity providers are short. When the market crashes, AAVE locks up its tokens. Staking and governance both lead to lower circulating supplies. Having a lower circulating supply makes sense if you believe in supply and demand.

  • Reputation

Aave’s reputation is well-known in the Ethereum community. Investors flock to DeFi protocols, and Aave is always among the top 3 lending protocols. For investors, the only thing they need to do is look at the numbers. According to DeFi Llama, the Aave protocol has a TVL of $5.59 billion, which means investors have put up $5.59 billion in crypto collateral. That doesn’t seem trustworthy to me.

  • Non-custodial

Aave is a non-custodial protocol, so you do not have to deposit anything to borrow or lend crypto assets. The wallet uses a Web3 interface (like MetaMask) to sign transactions, and you get new tokens corresponding to your underlying position and interest rate.

Aave’s non-custodial status gives you peace of mind. All the assets are in your wallet, so you do not have to worry about losing them.

Final words

Aave can be an excellent investment, as DeFi is the future of crypto. As people start using lending protocols, TVL and token values will increase. Aave is a TVL-backed project at heart, constantly adding new features to the protocol. Despite the bear market, this Ethereum-based DeFi protocol keeps working.

The AAVE community is awesome because they get involved in governance, and most of the token’s supply is locked up by holders voting, delegating votes, or submining. AAVE will only regain its throne if it offers the right incentives. If it does not become the king of DeFi, the TVL will suffer.

McClatchy newsroom and editorial staff were not involved in the creation of this content.