The Aave protocol provides one of the largest marketplaces for cryptocurrency loans and deposits. And this since 2017. In decentralized finance (DeFi), its platform has positioned itself as a benchmark. This popularity paid off in the eyes of European regulators on September 1. The company behind Aave just got a electronic money institution license in the eyes of the European Union.
The news therefore suggests that Aave will be able to create a real bridge between DeFi and mainstream users, keen to use their digital assets to earn interest, or to take out loans without going through a bank. With the EU agreement, Aave will be able to build a mobile application, for example, with which users can easily link their card and enjoy a simple and smooth experience to access DeFi without problems.
DeFi is no longer that dark realm of cryptocurrencies and Blockchain. Faced with players like Coinbase, who quickly wanted to capitalize on a model much closer to that of banks than decentralized platforms, this is excellent news. In its operation, Aave uses a governance token and this governance of the protocol ensures the integrity of the model on that of a pure and hard DeFi project.
Moreover, the Aave protocol for crypto-currency loans is based on the Ethereum blockchain but also Avalanche, Fantom, Harmony, Polygon, Optimism and Arbitrum. The pools for depositing tokens are numerous and varied and users can take advantage of attractive rates, especially if they use AAVE tokens.
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A scary stablecoin project
The DeFi bank has seen strong popularity since launching a new flash loan service. Thanks to its protocol, it now offers to take out a loan quickly and without collateral. It differs from the classic loan, on which Aave has a very strict policy to guarantee the security of repayments and proper functioning. But at least with these flash loans, it becomes very easy to borrow funds. Ideal for encouraging other DeFi projects to finance themselves too.
In the boxes, Aave is also considering a very controversial stablecoin. With its algorithmic system to determine in real time and automatically the interest rates of the loans, and the way the funds are distributed, Aave wants to take advantage of its skills to launch its own algorithmic stablecoin. On August 1, 2022, AAVE token holders voted for the development of the project, whose token would take the name GHO.
Stablecoins have a very important use in cryptography as they allow – in theory – to protect against volatility. They allow payment in the same way as a traditional cryptocurrency and can secure funds during a period of high volatility or market gloom, as is currently the case. Except that… an algorithmic stablecoin involves far more danger than a stablecoin backed by a fiat currency reserve.
The horror of the disruption and the collapse of the TerraUSD (UST) price last May greatly damaged the image and confidence in this kind of protocol. Europe is already in a defensive position against stablecoins (which compete with fiduciary currencies and which can prove to be at risk), which is why such a project could make European authorities cringe. Case to follow.