Aave is a decentralized finance protocol that allows people to lend and borrow crypto. Lenders earn interest by depositing digital assets into specially created liquidity pools. Borrowers can then use their crypto as collateral to take out a flash loan using this liquidity. Aave (which means “ghost” in Finnish) was originally known as ETHLend when it launched in November 2017, but the rebranding to Aave happened in September 2018. (This helps explain why this token’s ticker is so different from its name!) AAVE provides holders with discounted fees on the platform, and it also serves as a governance token — giving owners a say in the future development of the protocol.
Instead of having to individually match a lender to a borrower, the Aave protocol works based on an algorithm that enables automated loans directly from Aave liquidity pools. Lenders can deposit their crypto holdings into liquidity pools and earn interest based on the amount they are depositing and lending.
Interest rates are paid by borrowers and depend on the utilization rate, which means that interest rates depend on the number of assets in a pool. If all the assets are used, interest rates are higher to incentivize lenders to deposit more assets for borrowers. If not all the assets in the pools are used, interest rates are lower to attract borrowers and encourage borrowing, so borrowers and lenders are mutually dependent.
Aave loans are overcollateralized, which means that users need to make a deposit in the form of collateral that is higher in value than the amount they are borrowing. In the case that the borrowed assets are not returned within the given timeframe, collateral is taken by the lenders. The cryptocurrency market is volatile, so Aave employs a liquidation process in case the value of the collateral falls under the collateralization rate defined and determined by the Aave protocol. Aave also allows flash loans, which means that borrowers can take out loans without collateral as long as they pay for the interest fee known as one-block.
Aave has a Safety Module where AAVE is deposited to act as a safety net in case of capital shortage. If there is a lack of capital in the system, the protocol will use the funds from the Safety Module to cover the deficit by selling deposited AAVE. This is a way for the system to prevent losses and strengthen the capital contained within the lending protocol.
The weekly technical chart of AAVE coin price hints towards a bearish momentum for upcoming weeks. On coming to the daily chart AAVE price are signs of strong correction for upcoming days. AAVE price is currently above the 50MA and 100MA with an upcoming positive crossover. The 100MA (Red) line is near $334 making it a temporary bounceback region for the coin. The bullish momentum of AAVE can see a halt near $400 and on the downside, the price can observe a bounceback from $300.AAVE price has formed a downside parallel channel on the daily chart. If the price jumps 15 to 20% above the level then a strong upside momentum can be seen in price. AAVE/BTC pair can see a strong upside momentum in the future.
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