Aave Protocol

The Aave Protocol is an open-source, decentralized finance (DeFi) protocol built on the Ethereum blockchain and released in 2020. It is one of the largest cryptocurrency liquidity protocols. The Aave Protocol uses smart contracts to automate processes, including distributing funds and handling collateral.

Background
Aave Protocol allows anyone with a cryptocurrency wallet to supply and borrow cryptocurrency assets across Ethereum, Polygon, Avalanche, and other EVM blockchains by posting collateral, without third-party intermediaries such as banks and brokerages. Suppliers share the interest paid by borrowers, who deposit cryptocurrency assets into different liquidity pools. In turn, suppliers can use their cryptocurrency assets as collateral to borrow at stable or variable interest rates. There are currently three versions of Aave, each of which established upgrades to the protocol: V1, V2 and V3.

V3 introduced lower transaction fees and the ability to operate across virtually all blockchains. This allows borrowers and suppliers to trade in not just cryptocurrencies on the Ethereum blockchain, but also on Layer 2 blockchains that use Ethereum as a settlement layer.

In October 2021, Aave reached approximately $28 billion in Total Value Locked (TVL) across multiple chains, including Polygon and Avalanche.

The Aave Protocol is governed by AAVE token holders who form the Aave Decentralized Autonomous Organization (DAO). The Aave DAO governs the protocol and proposes, discusses and votes on any changes to the protocol via Aave Improvement Proposals (AIPs).

History
The Aave Protocol was developed and released on Ethereum mainnet in January 2020 by Aave Labs founder Stani Kulechov, Russian-born Finnish programmer who had moved to Finland with his family as a child. Aave means "ghost" in Finnish.

Aave was preceded by ETHLend, also developed by Kulechov, which launched in 2017.

In July 2023, Aave released GHO, an Aave-native, decentralized stablecoin. GHO is backed by assets available in the Aave Protocol.