A closer look at the finance protocol Aave
Originally launched as a crypto savings and loans dapp ETHLend, finance protocol Aave has quickly developed into one of the key DeFi dapps on Ethereum.
In its simplest form, like Compound, it allows users to deposit certain tokens and earn real-time interest from their deposits as other users borrow those tokens at a higher interest rate.
However, Aave has also become known for its flash loans, which enable users to pay a small fee to borrow very large amounts of token value as long as they pay back the loans within the same transaction.
In this way, savvy users can access millions of dollars-worth of tokens at the cost of tens of dollars; which has proved very useful to enable new ways of using many DeFi dapps profitably.
And, over time, this ability is being made available to non-technical users too as other dapps integrate flash loans into their features.
Of course, this sort of financial wizardry has not been without its problems. Flash loans have been used in some of youtinfamous hacks and exploits, typically when a flash loan is used to manipulate the price of an exchange oracle to artificially raise or lower the price of a token. This then provides arbitrage opportunities.
Nevertheless, Aave continues to innovate in the DeFi space, with its most recent addition the ability for users to delegate their deposits to others via legal agreement, enabling these uncollateralized parties to take out loans.
As ever, remember all DeFi dapps are highly experimental so never lock up more value than you’re prepared to lose if something unexpected happens.
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