What's the AAVE token used for?

AAVE tokens are used to govern the Aave protocol. Holders of AAVE tokens can vote on the direction of Aave, and how to manage the protocol’s funds. Each AAVE token equals one vote.

Users can also post AAVE tokens as collateral. When they do, their borrowing limits are raised. Those who borrow AAVE can also bypass the borrowing fees and get a discount on fees if they post it as collateral.

How lending works on Aave

Traditionally, to get a loan, you'd need to go to a bank or other financial institution with lots of liquid cash. The bank will ask for collateral in exchange for the loan. You then pay the principal to the bank every month, plus interest.

DeFi is different. There is no bank. Instead, smart contracts (which are computer codes that automate transactions, such as selling if a token price reaches a certain threshold) do the heavy lifting. DeFi removes the middlemen from asset-trading, futures contracts, and savings accounts.

What is the difference between Aave v1 and V2?

Aave v1 lets you borrow with stable and variable interest rates. But Aave v2 lets you borrow with stable and variable rates at the same time, with the same underlying asset, from the same wallet. That gives you the flexibility to switch at any time.

You can read the full changes here

Overview:

In this Dashboard, we will be looking at data:

• Daily Aave supplied/ withdrawn on Mainnet V1 and V2
• Daily Aave supplied/ withdrawn on Polygon V2 and V3
• Daily Aave supplied/withdrawn on Avalanche V2 and V3
• Daily Aave supplied/withdrawn on Optimism
• Daily Aave supplied/withdrawn on Arbitrum
• Daily Aave staked/ unstaked on Mainnet

What is Aave:

Aave is a decentralized non-custodial liquidity protocol where users can participate as depositors or borrowers. Depositors provide liquidity to the market to earn a passive income, while borrowers are able to borrow in an overcollateralized (perpetually) or undercollateralized (one-block liquidity) fashion.

Aave has 3 versions including V1, V2 and V3 and supports 7 different chains including Ethereum on V1 and V2, Polygon and Avalanche on V2 and V3, Optimism & Arbitrum & Fantom and Harmony on V3.

What is the difference between Aave V2 and V3?

In Aave V2, Aave governance activates liquidity mining rewards through community proposals, and rewards are ultimately settled in stkAave tokens despite the different rates for each asset. Aave V3 now offers users multiple reward options to leverage their protocol tokens to provide additional incentive rewards.

You can read the full changes here

Let’s look at Aave Mainnet V1 first:

Aave Mainnet V2 Stats:

Observation:

• Aave V2 outperformed V1 for Aave deposit/ withdrawn in terms of unique users, deposit and withdraw amount.
• Most popular assets for aave depositors to borrow are stablecoins.

Polygon V2 and V3 stats:

Avalanche V2 and V3 stats:

Optimism and Arbitrum stats:

Aave market stats since July:

Obsevations:

• Aave supply increase in bad market conditions to prevent risk of liquidation.
• Aave withdrawal increase when market condition is more stable.
• Althouh Mainnet V2 has more share of aave supplied volume compared to other chains but ≈ 70% of all transactions happens on Polygon V2 and V3.
• Optimism transactions increased recently due to incentive announcement for Optimism market users.

Daily AAVE staked and unstaked:

What is Aave Staking?

Staking essentially means depositing AAVE tokens within the protocol Safety Module. The purpose of staking is to act as a mitigation tool in case of a shortfall event. As an incentive to protect the protocol Safety Module stakers will receive AAVE as Safety Incentives (SI).

You can read more about staking here.

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