What is AAVE? A thorough explanation of DeFi lending [for beginners]

Cryptocurrency Information Bureau | Currency Introduction: Are banks already outdated? Start DeFi lending with AAVE! Beginners can rest assured, a thorough explanation of everything about AAVE! #AAVE #DeFi #Cryptocurrency

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[For beginners] The future of finance? A thorough explanation of the cryptocurrency AAVE! Lending and flash loans are no longer scary!

Hello! I'm John, a veteran cryptocurrency blogger. Today, I'll be explaining the cryptocurrency "AAVE," which has been gaining attention recently, in an easy-to-understand way even for complete beginners. "What is DeFi (Decentralized Finance)?" "I've heard of AAVE, but I don't really understand it..." I'll clear up all your doubts!

Basic information about AAVE: A gateway to the world of DeFi

AAVE isDeFi (Decentralized Finance)It is one of the central projects of a new financial system called DeFi. DeFi is a mechanism that allows individuals to make financial transactions (lending, borrowing, exchanging money, etc.) directly with each other without going through a central administrator such as a bank or securities company. AAVE plays a particularly important role as a "lending platform" within DeFi.

The problem AAVE is trying to solve

Traditional financial services required an intermediary institution such as a bank to borrow or deposit money. This posed issues such as cumbersome procedures, high fees, and limited access to only a select few.

AAVE aims to solve these problems using blockchain technology (more on that later!).More transparent, accessible and efficient financial servicesWe are aiming for this.

Unique Features of AAVE

AAVE has some interesting features not found on other lending platforms.

Wide range of assets:You can borrow and lend many different types of cryptocurrencies.
Choose between floating and fixed interest rates:Borrowers can choose between a "variable interest rate," where the interest rate changes according to market conditions, and a "fixed interest rate," where the interest rate remains the same for a set period of time. This is useful for planned capital management.
aToken:When you deposit money into AAVE, you receive a special token called "aToken" as proof. This aToken represents the deposited assets and interest, and the aToken itself can be used in other DeFi services. For example, if you deposit ETH (Ethereum), you receive aETH, and the value of this aETH increases over time by the amount of interest.
Flash Loans:This is an ultra-short-term, unsecured loan that is synonymous with AAVE. It is an incredible mechanism in which borrowing and repayment must be completed within one transaction (a set of transactions), and is mainly used by developers for arbitrage trading. It is not something that beginners would use right away, but it is a very innovative technology.

Simply put, AAVE is "An evolved bank that anyone can use onlineIt may be easier to understand if you imagine it as something like "

AAVE Token Supply: The Key Price Number

When considering the price of a virtual currency, its "supply" is very important. Of course, there are rules regarding the supply of AAVE tokens as well.

Max Supply:The maximum number of AAVE tokens that can be issued in the future is1,600 AAVEOf this, 1,300 million AAVE will be migrated from the old LEND tokens, and the remaining 300 million AAVE will be set aside as the Aave Ecosystem Reserve.
Circulating Supply:This is the amount of AAVE tokens actually in circulation. As of mid-2025, when this article is written, most of the maximum supply is in circulation. The latest accurate figures can be found on information sites such as CoinMarketCap and CoinGecko.

Why is supply important?

This is because it is related to the basic principle of economics, "balance of supply and demand." For example, let's say the AAVE platform becomes more popular and the number of people wanting AAVE tokens (demand) increases. If the supply is limited, the value (price) of the tokens will tend to rise. Conversely, if the supply is allowed to continue to grow indefinitely, the value of each token will tend to dilute (inflation). The fact that the maximum supply is fixed, like AAVE,RarityThis is believed to have the potential to generate value stability over the long term.

AAVE’s technical structure: Blockchain and smart contracts

The foundation of AAVE isBlockchain (Distributed Ledger Technology)This is a technology. Blockchain is a database that links transaction records in units called "blocks" like a chain and manages them in a distributed manner on many computers. It is characterized by being extremely difficult to tamper with and highly transparent.

AAVE is primarilyEthereumIt is built on a blockchain called Ethereum. If Bitcoin is called "digital gold," Ethereum is also called the "world computer" and is a platform that can run various applications (DApps - decentralized applications).

And the system that automatically runs AAVE's lending system isSmart contracts (automatically executed contract programs)This is a program that automatically checks and fulfills the terms of a contract according to pre-set rules. For example, the contract details such as "Person A lends Person B 10 ETH at an annual interest rate of 5% and deposits XX as collateral" are programmed and recorded on the blockchain. This allows contracts to be executed safely and reliably without the need for an intermediary.

In AAVE, when a user deposits (lends) assets, they are fed into a collection of funds called a "liquidity pool." Borrowers can deposit collateral and borrow assets from this pool. Interest rates are automatically adjusted by an algorithm depending on the utilization rate of this pool (how much funds are being borrowed). All of this is handled transparently and efficiently by smart contracts.

The AAVE Team and Community: Trustworthy and Active

The people behind any project are crucial, and AAVE is supported by a trusted team and an active community.

Development team: Aave Companies

The AAVE project was originally launched in 2017 under the name ETHLend, and has since been rebranded to its current name, AAVE. The founders areStani KulechovHe is a very well-known figure in the DeFi industry. The development of AAVE is led by an organization called "Aave Companies," which is a group of talented developers and experts. They are constantly working to improve the protocol and develop new features, and their technical capabilities are highly regarded.

Community and Governance

AAVE is not a centralized operation.Decentralized GovernanceThis is a mechanism that allows AAVE token holders to vote and participate in important decisions regarding the future of the project (e.g. adding new assets, changing fees, etc.).

AAVE also has an organization called "Aave Grants DAO" that provides funding to community-driven projects that contribute to the growth of the Aave ecosystem. In this way, not only the development team but the entire community is enthusiastic about making AAVE better. Various discussions are held daily on the official forum and Discord, and the transparency and community participation are one of the factors that increase the reliability of the project.

AAVE Use Cases and Opportunities: Shaping the Future of Finance

AAVE has a wide range of uses in the world of DeFi (decentralized finance) and is highly anticipated for its future potential.

Current main use cases

Lending:You can earn interest by depositing your cryptocurrency into AAVE. It's like a digital version of a bank deposit. Interest fluctuates depending on the type of asset you deposit and market demand.
Borrowing:By depositing your cryptocurrency as collateral, you can borrow another type of cryptocurrency. For example, instead of selling the Bitcoin you want to hold for the long term, you can use it as collateral to borrow a stablecoin (a cryptocurrency with a stable price) to meet short-term funding needs.
Flash Loans:As mentioned before, this is an unsecured loan that can be paid back in one transaction. It is primarily used for advanced financial transactions such as arbitrage and collateral swaps. It is a very powerful tool for developers.
Governance:Holding AAVE tokens gives users the right to vote on proposals for the operation of the AAVE protocol, allowing them to play a part in determining the direction of the project.

Future prospects

AAVE is a project that is constantly evolving. Here are some of the exciting developments we can look forward to in the future.

GHO (Go) Stablecoin:AAVE is a decentralized stablecoin that aims to be pegged to the US dollar. Users can mint GHO using assets deposited in AAVE as collateral, which is expected to further improve capital efficiency within the AAVE ecosystem. As of 2025, it is being rolled out in stages.
Real World Assets (RWA) Integration:This is a movement to tokenize real-world assets such as real estate and stocks and use them as collateral in DeFi. AAVE has also shown interest in this field, and if it comes to fruition, it could greatly expand the size of the entire DeFi market.
Cross-chain deployment:AAVE is not only available on Ethereum, but also on other blockchains such as Polygon and Avalanche. By supporting more chains in the future, more users will be able to use AAVE.
Further evolution of Aave V3:The latest version of the AAVE protocol, V3, has improved capital efficiency, reduced gas fees (transaction fees), and enhanced security. Continuous updates are expected in the future.

In this way, AAVE continues to expand its potential as a core infrastructure of DeFi. It has the potential to evolve into a broader range of financial services beyond just lending and borrowing digital assets.

Comparison with competitors: What are AAVE's strengths?

AAVE is not the only DeFi lending platform. For example,Compoundis also a very well-known competing project.

So what are AAVE's strengths compared to its competitors?

Innovation:AAVE has always been proactive in introducing new technologies and features. Flash loans are a prime example of this, and we were one of the first to offer fixed and floating interest rate options. Our unique initiatives, such as the GHO stablecoin, also show AAVE’s forward-thinking approach.
Diverse Asset Support:AAVE supports a wide variety of cryptocurrencies, providing users with a wide range of options, allowing them to manage their assets with a variety of strategies.
Focus on Security:Security is vital for DeFi protocols. AAVE has undergone multiple code audits and has a bug bounty program to ensure security.
Strong Community and Ecosystem:The active community and the ecosystem that is spreading around AAVE (including other DeFi projects that collaborate with it) are also major strengths.
Multi-Chain Strategy:By expanding to multiple blockchains, not just Ethereum, they are trying to address issues of scalability (high processing power) and gas fees and reach more users.

Of course, other platforms such as Compound have their own advantages, but AAVE is one of the leaders in the lending market, especially in terms of its speed of innovation and the breadth of features it offers.

Risks and Cautions of AAVE: How to Deal Wisely with It

AAVE is a very attractive project, but as with cryptocurrencies and DeFi in general, there are some risks and precautions that you should be aware of.

Price fluctuation risk (volatility):The price of the AAVE token itself, as well as the price of the virtual currencies lent and borrowed on the AAVE platform, may fluctuate significantly. If the value suddenly drops, there is a risk that the assets deposited as collateral will be liquidated (forced sold).
Risks of smart contracts:AAVE is operated by smart contracts, but since it is a program, there is a possibility that bugs and vulnerabilities may exist. Unfortunately, in the DeFi world, there are occasional cases where malicious hackers have exploited vulnerabilities in smart contracts to steal funds. AAVE is focusing on security measures, but you should always be aware of the risks.
Liquidation Risk:When borrowing assets, if the value of your deposited collateral falls below a certain percentage of the value of the borrowed assets (liquidation threshold), your collateral will be automatically sold. This is especially important during times of market volatility.
Regulatory risks:Legal regulations regarding DeFi and virtual currencies are still in the process of being established in each country. It is necessary to take into consideration the possibility that unexpected regulations may be introduced in the future that may affect the operation and use of AAVE.
Scams and phishing:Taking advantage of AAVE's popularity, scammers may attempt to use fake websites and social media accounts (such as phishing scams), so always be cautious and bookmark the official website URL.

Understanding these risks,With funds that you can live comfortably even if you lose themIt is important to use it with caution. Beginners, in particular, are advised to try it out with a small amount.

Expert Opinion/Analysis: What is the Future of AAVE?

Many experts and market analysts have made various analyses and predictions about the future prospects of AAVE. Here we will introduce some general views from several sources, but please understand that these are only predictions and do not constitute investment advice.

For example, articles such as "Aave Review: Beginner's Guide to Aave" on 99bitcoins.com provide a detailed explanation of AAVE's basic functions and future prospects. In addition, price prediction sites such as Coinpedia and DigitalCoinPrice present predictions for the price of AAVE after 2025 based on various scenarios. Some analyses include:AAVE prices could reach hundreds of dollars by 2025Many have suggested that AAVE will continue to play an important role as the DeFi market grows overall (e.g., Coinpedia mentions up to $2025 in 526, while DigitalCoinPrice mentions $2025 in early 374.07).

Investx.fr and Longforecast.com also provide specific figures for the price range in 2025, and overallExpectations for medium- to long-term growthAn article on Bitrue.com also analyzes the background to the price increase as of May 2025.

These analyses often cite AAVE's technical superiority, the expansion of the DeFi market, the introduction of new features like the GHO stablecoin, etc. as positive factors. However, since many uncertain factors such as market sentiment, macroeconomic conditions, and regulatory trends will affect the price, it is important not to take these predictions at face value, but to view them only as a reference.

AAVE Latest News and Roadmap Highlights

AAVE is a project that is constantly evolving, so it is important to keep up with the latest information. Here are some of the notable trends and roadmap highlights as of 2025.

GHO Stablecoin Rollout:AAVE's native decentralized stablecoin, GHO, will launch on mainnet in 2023, with expansion and enhancements planned through 2025. If GHO becomes widely used within the AAVE ecosystem, it will further increase the appeal of the platform.
Aave V3 adoption and feature expansion:The latest version, Aave V3, has achieved higher capital efficiency, enhanced cross-chain functionality, reduced gas fees, etc. We expect to continue adding new features based on V3 (such as "Portals," an isolated market for specific user groups) and expanding the range of supported chains.
Initiatives for Real World Assets (RWA):The RWA field, which tokenizes traditional financial assets and brings them into DeFi, is attracting attention as the next big growth driver for DeFi. AAVE is also increasing its interest in this field, and it is possible that they will advance the incorporation of RWA through concrete partnerships and protocol updates.
Evolving governance:Governance by the AAVE DAO (Decentralized Autonomous Organization) is constantly being discussed for improvement in order to enable more efficient and community-driven decision-making. Work is underway to improve the voting system and create mechanisms that make it easier for more AAVE holders to participate in governance.
Continuing to strengthen security:Security is a top priority for DeFi protocols, and AAVE continues to focus on regular audits, implementing a bug bounty program, and researching and developing new security techniques.

This information is posted on the official AAVE blog, Twitter (now X), Discord community, governance forum, etc. If you are interested, please check it out. However, the information is constantly changing, so be sure to get the latest and most accurate information.

Frequently Asked Questions (FAQ): Answering questions for AAVE beginners!

Q1: What does AAVE mean in Japanese?: A1: AAVE is pronounced "Aabe," which means "ghost" in Finnish. It may suggest that the project values anonymity and transparency.
Q2: Where can I buy AAVE tokens?: A2: AAVE tokens can be purchased at many of the world's major overseas cryptocurrency exchanges, such as Binance, Coinbase, and Kraken. Some Japanese exchanges also handle them, so please check the official website of each exchange. When purchasing, the general procedure is to first deposit Japanese yen into the exchange and then use that money to purchase AAVE.
Q3: How much interest can I get if I lend with AAVE?: A3: The interest rate (APR - Annualized Percentage Yield) earned on AAVE is constantly fluctuating depending on the type of cryptocurrency being lent and the balance of supply and demand in the market at the time. Generally, the more popular an asset is, the higher the interest rate tends to be when it is lent. You can check the latest lending and borrowing rates for each asset on the AAVE platform.
Q4: What exactly is an AAVE flash loan? Can ordinary people use it?: A4: Flash loans are very special loans.Borrowing and repayment occur simultaneously in one transaction (a single transaction on the blockchain)That is, the borrowed money is immediately used in some kind of transaction (for example, arbitrage using price differences between different exchanges), and the profit is made to repay the principal and fees. This process is completed in a few to tens of seconds. A major feature is that no collateral is required, but since it cannot be executed unless the repayment process is built into the transaction, advanced programming knowledge is required. For this reason, it is mainly used by developers and bots (automated trading programs), and ordinary individual investors rarely have the opportunity to use it directly.
Q5: What is the future of AAVE? Is it safe to invest in it?: A5: AAVE has established a strong position as a DeFi lending protocol, and is one of the projects with promising futures, supported by innovative features and a strong community. There is also potential for future growth, such as the introduction of GHO stablecoins and expansion to RWA. However, the entire cryptocurrency market is very volatile, and there are also regulatory uncertainties and smart contract risks. It is important to consider your own asset situation and risk tolerance, and make a decision after thoroughly gathering information yourself before investing. There is no guarantee that you will make a profit.

Summary: Is AAVE the key to unlocking the future of DeFi?

Well, today I have explained the virtual currency AAVE as simply as possible, from its basic structure to its future prospects and risks. AAVE is not just one type of virtual currency,An important platform for realizing a new form of finance (DeFi).

AAVE's mission to make borrowing and lending money more transparent, efficient, and accessible to everyone around the world has the potential to bring about a major revolution in our financial system.

Of course, new technology comes with risks. However, by correctly understanding how it works and being careful, you may be able to touch a part of the future of finance. The world of AAVE and DeFi is deep, and new information is constantly emerging, so please continue to learn.

[Disclaimer]
This article is intended to provide information about the virtual currency AAVE, and does not recommend the purchase of any specific financial products or provide investment advice. Investing in virtual currencies involves high risks. When making an investment, please make your own judgment and responsibility, and make a decision after sufficient research and comparative consideration.

[For beginners] A thorough explanation of AAVE! Experience the future of finance with DeFi lending!