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Loans on blockchain and the role of Aave
The biggest thing in this world is money, and we all know it very well; daily, millions of people deal and play in the market of money. The world will not be in manual form but also into the big screen, i.e., cashless, but yet that is money. People from different technical backgrounds and fields know that crypto is the future money market. So, moving towards the crypto market, we have Aave, a money market creation platform that has been built on an open-source and non-custodial protocol that brings ease for the users to earn interests when they make deposits. It functions as a decentralized finance (Defi) application. It's fascinating to know that Aave brought the future to the present by first lending decentralized lending protocol with the framework of DeFis, and thus it flagstoned the way for Defi to become a thing. The main goal of Defi is to give crypto users full control over their assets, and it is because of decentralization and blockchain technology. The Aave protocol launched on Ethereum mainnet in January 2020 and is now dominating the Defi market with a total of $1.66 billion locked on the platform. It is a decentralized lending system that allows users to lend, borrow, and earn interest in crypto assets without intermediaries.
Advantages of Aave
Aave can be described as a system of lending pools. Users can deposit funds they wish to lend, which are then collected into a pool. Borrowers may then draw from those pools when they want to take a loan. These tokens can be traded or transferred as a lender wishes. Aave issues two kinds of a token; aTokens issued to lenders to collect interest on the deposits and Aave tokens which are endemic tokens of Aave. It also offers advantages like borrowers don't get charged a fee if they take out loans. Also, borrowers who use AAVE as collateral get a discount on fees.
Flash Loans gives developers the attainment to borrow money from Aave and then pay it back in a single transaction. Unlike other loan processes that require guaranteed repayment with collateral, Flash Loans rely on the timing loan's repayment timing. Flash loans take advantage of a feature of all blockchains, which is that transactions are only finalized when a new bundle of transactions, which is known as a block, and the network accepts it. Adding each new block takes time. On Bitcoin, that interval is roughly 10 minutes. On Ethereum, it's 13 seconds. An Aave flash loan, therefore, takes place in that 13-second period.
Aave is a decentralized and transparent project, which means a certain level of security with the provider. Also, well-known investors have invested in the platform, which is also a good sign. The governance model also allows users to contribute to the development and success of the project themselves.
And as the Aave website says
"Security is a top priority at Aave, and we are constantly testing and improving the Aave protocol. The funds are stored in a non-custodial smart contract on the Ethereum blockchain."
Which is the biggest thing for every investor and user.