Aave-non-custodial liquidity protocol
Aave protocol is not a Peer-to-Peer lending strategy but a pool-based strategy.
For the P2P lending strategy, every lending needs two parties to become a match: lenders and borrowers. Instead, the protocol pools funds together for the pool-based strategy, the same as the amounts borrowed and their collateral. This mechanism enables FlashLoan property.
Flash loans are uncollateralized loans in DeFi. Liquidity is returned within one transaction block, and there is no collateral needed. The flash loans are designed for experienced developers. They need to build a contract to request a flash loan, then the contract itself will have all other steps, for example, payback to the loan, interest, and charges within one transaction block.
Functionalities:
Refinance, collateral swap, arbitrage and liquidate, and others as well.
Aave – Open Source DeFi Protocol
Aave is an Open Source and Non-Custodial protocol to earn interest on deposits and borrow assets. The protocol features Flash Loans, the first uncollateralized loan in DeFi.
There are other DeFi applications as well.
Such as Uniswap protocol, which is a decentralized crypto trading protocol.
Chainlink, a decentralized oracle network, provides tamper-proof inputs, outputs, and computations. The purpose is to support advanced smart contracts on any blockchain.
Decentralized Finance has experienced tremendous growth since mid-2020. Still, DeFi has shown that offering decentralized financial services at scale is possible in its early days. However, we need to consider governance, security, tax, and regulatory areas in the DeFi ecosystem. DeFi will reshape the future of Finance in long-term expansion.
Author: Arulohim 307
Editor: AurCommunity
The opinions expressed in this publication are those of the authors.