AAVE’s operating mechanism and future

Today’s topic is “AAVE: A Cross-Chain Protocol”. I will discuss the following issues:

What is the AAVE protocol? How does AAVE work across chains? What can AAVE bring us? And how does AAVE empower the entire ecosystem?

What is the AAVE protocol? 

AAVE's operating mechanism and future

AAVE is currently the largest decentralized liquidity agreement, and users can withdraw liquidity from funds used as collateral after depositing funds.

In this mode, users can create an on-chain revenue farm, and developers can create different products and agreements on top of this.

How does AAVE work across chains?

AAVE Protocol is very friendly to developers. It has developed rapidly since last year. It is currently the largest DeFi protocol and an important part of WEB3.

Recently, we have not only deployed AAVE on the Ethereum network, but also on the Polygon network. So the question is, how do we expand the community to different networks?

The operation of AAVE Protocol is actually that users deposit assets in the agreement. When users deposit to generate income, the assets deposited by users are actually a form of collateral-with these collaterals, users can Remove other assets from the agreement.

At the same time, users can also delegate their power to others, and other people can operate in your name to form a network of trust.

AAVE's operating mechanism and future

This kind of credit delegation feature is also currently being tried, and we hope that more developers will develop more applications based on this feature in the future.

In addition, the liquidator is also an important part of the AAVE Protocol.

The liquidator is a decentralized clearing network. Like the lender and the borrower, the liquidator operates autonomously and liquidates unhealthy collateral in this way to ensure the healthy operation of the agreement.

This feature is especially important when assets fluctuate. For example, on Black Thursday last year, asset prices fell sharply, triggering a large number of liquidations, but AAVE still maintained resilience, because AMM and lightning loans maintained the solvency of DeFi-type agreements during the volatility. .

How are the protocol governance methods and backup mechanisms operating?

The most important thing for me is that the AAVE Protocol is shared by the community and members, which means that the AAVE team initially deployed the protocol, and now everyone can contribute and build the protocol.

The original team or any other development team cannot change the agreement at will, but token holders can vote on matters that they deem important.

In addition, it is also very attractive, that is, this decision-making power can also be delegated to other participants to make proposals or vote.

AAVE's operating mechanism and future

The AAVE protocol has a so-called security module, where users can deposit other tokens, which means that users can avoid potential risks, such as certain intelligent guessing loopholes.

Secondly, the protocol itself has been audited and formally verified by five different auditors. If a problem occurs, this security module can be used as a backup mechanism.

What can AAVE bring us? And how does AAVE empower the entire ecosystem?

We launched AAVE V2 in December last year. The V2 market itself has been growing rapidly because the entire DeFi ecosystem is improving.

AAVE's operating mechanism and future

The above figure is the total value locked in the agreement, which represents the amount deposited in the agreement and the borrowed amount (BV), and the amount of these mortgage assets borrowed from the agreement.

DeFi is developing rapidly because the protocol has a wide range of different assets, but compared with other protocols, asset parameters are very conservative, because we have governance votes-users can actually withdraw certain assets based on their risk status How much liquidity to vote for governance.

This is like key metrics for major markets.

Our deployment in the market Polygon is essentially a proof of stake, compatible with EVM, which means that users can run the same smart contract there with almost the same configuration, but only the network settings are different. This convenience not only benefits AAVE, but also benefits the entire DEFI ecosystem.

Polygon is actually very interesting because its transaction cost is very small compared to our transaction cost on the Ethereum main network. I think the point of being a cross-chain protocol is to tap different types of communities, especially in Polygon where transaction costs are low, so you can reach a wider audience——

We currently have about 72,000 active users on Ethereum and nearly 140,000 on Polygon.

AAVE's operating mechanism and future

So this only shows the number of users when transaction fees are low, and changes in transaction fees also allow us to better deploy to other networks. This AAVE is a good way to cross-chain, and it also serves as a model for other protocols.

AAVE's operating mechanism and future

If you compare L1 and L2, you will find that the deposit amount of L2 as a key component is actually smaller than that of our L1, but there are many more users, which is also very interesting.


Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/aaves-operating-mechanism-and-future/
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