Aave is a borrowing and lending protocol. Loans are overcollateralized and depositors are paid interest.
The AAVE token is mainly used for governance, safety and liquidity incentives.
Here is how it works 🧵
Depositors can pool capital and receive interest.
Borrowers can take a loan, paying interest. As there is no KYC or credit rating checks, borrowers have to overcollateralize their loan i.e. post more collateral than the loan they take.
The core feature are pools that hold deposited funds, determine interest rates and ensure a loans collateral stays above its liquidation level.
Revenue comes from borrowing & lending spreads and flash loans and go to the treasury.
The treasury is governed by AAVE token holders. Who also decide over risk parameters and token issuance from the ecosystem reserve fund.
The reserve fund was created to incentivise usage of the safety module and liquidity providers.
AAVE can also be staked. The safety module pays stakers of AAVE more AAVE and is meant to protect the Aave system in oracle failures events, smart contract and liquidiation risks.
AAVE has a supply of 16m with a circulating supply of 13.9m and the remaining 2.1m in the ecosystem reserve.
No tokens are locked and where allocated as shown.
Generally the token is quite well distributed with the largest individual address holding just 1.6% of tokens.
We’re making a ton of progress in building out our content strategy and currently engaged with a handful of clients helping consult on their tokenomics design.
Here are some of the highlights from this month’s work:
We’ve kicked off the design of our token evaluation framework.
With this framework, builders and investors will be able to input key attributes of the protocol/token being assessed to understand the durability of the tokenomics.
We’re in the process of designing an education series on tokenomics in collaboration with latecheckoutplz to break down the key drivers of tokenomics and why they matter.