All blogposts
Aave: A Leading Lending Protocol in the DeFi Pulse Index
Aave: A Leading Lending Protocol in the DeFi Pulse Index
Aave (AAVE) is an ERC-20 token released in 2020 as the governance token for Aave, a lending and borrowing protocol. It is one of several tokens currently held within the Index Coop’s DeFi Pulse Index (DPI).
2/2/2022
Index Coop
Content
Defi Pulse Index (DPI) Token Guide
What is AAVE?
Aave is an open-source and non-custodial liquidity protocol that allows users to receive interest on their cryptocurrency holdings and borrow digital assets through over-collateralized loans. In traditional finance terms, Aave functions similarly to a money market.
The way Aave works is by allocating a platform specific token (called aTokens) to a user’s crypto holdings. For example, a user who deposits DAI will hold aDAI on Aave. Each aToken is based on one crypto asset and the interest rate each aToken earns is individual, depending on the supply and demand for the original coin.
The types of loans available to users who deposit assets into Aave’s liquidity pool are stable rate loans, or variable rate loans.. A stable rate loan has a stable interest rate on Aave, and can be thought of as similar to a loan in traditional finance. Variable rate loans fluctuate based on the current supply and demand on Aave.
Aave was also the first to introduce flash loans in the DeFi space, and has issued over $5 billion in flash loans as of December 2021. Flash loans are short-term uncollateralized loans that make use of smart contracts.
AAVE is the governance token for the popular DeFi lending and borrowing protocol Aave.
Who created Aave?
Aave was founded by Stani Kulachov, who now serves as the CEO. Kulachov initially became interested in Ethereum and how it could impact traditional finance as a law student at the University of Helsinki. Kulachov launched ETHLend in 2017, which was eventually rebranded to Aave. The word Aave means “ghost” in Finnish.
AAVE Governance and Tokenomics
When Aave first launched in 2017, LEND was its native token. The token migrated to the Aave token In September 2020, after its DAO voted to approve this migration the token was changed to AAVE in the first Aave Improvement Proposal.
Holders of the AAVE token are able to vote on and make proposals on the current and future parameters of Aave. There are a total of 16,000,000 AAVE tokens, the maximum amount that will be created and they are currently all in circulation.
Why was AAVE included in DPI?
With a market size of more than $13 million, Aave is considered one of the most established liquidity protocols in the DeFi space. Aave’s market capitalization is $2.8 million. When the AAVE token launched at the end of 2020, it was priced at $42.2. As of January 19, 2022, the token is priced at $214.29.
How can I gain exposure to Aave?
You can gain exposure to Aave and other leading DeFi assets by buying DPI which includes AAVE tokens. You can buy DPI directly from the Index Coop by connecting your wallet to the Index Coop app.
If you’re looking to exchange a fiat currency, like the U.S. dollar, directly for DPI, then you’ll want an Ethereum wallet like Argent, Metamask, or Rainbow. With each of these wallets, you can connect to your bank account or debit card, which allows you to exchange fiat currencies directly for Index Coop products like DPI.
What is DPI?
The DeFi Pulse Index ($DPI) is a digital asset index that tracks the performance of “blue chip” decentralized financial (DeFi) assets across Ethereum. It combines the features of an ERC-20 token and a traditional structured product to create a 21st-century digital upgrade to traditional structured products. DPI is capitalization-weighted based on the value of each token’s circulating supply and aims to track projects that have significant usage and show a commitment to ongoing maintenance and development.
As a bundled crypto asset, you effectively own all of the underlying tokens and can redeem your units of DPI for the underlying tokens, a feature of traditional structured products that is typically reserved for large, institutional investors.
As an Ethereum-based crypto-asset, $DPI can be used productively throughout DeFi with opportunities for liquidity provision (LP), borrowing and lending, yield farming, and collateral debt position (CDP)
DPI was launched jointly by Set Protocol and DeFi Pulse Inc., and was the first product to be managed by the Index Coop.
About Index Coop
Index Coop is a decentralized autonomous organization (DAO) that powers structured decentralized finance (DeFi) products and strategy tokens using smart contracts on the blockchain. We offer a suite of sector structured products, leverage and inverse products, and yield-generating products. We aim to create products that are simple to use, accessible to everyone and secure. Our products are built on Set Protocol, a twice-audited, self-custodial DeFi tool that allows for the creation and management of Ethereum-based (or ERC-20) tokens. Among users, partner protocols, and our composable products, Index Coop maintains one of the largest partnership networks in the DeFi ecosystem.
How to buy Index Coop products with fiat currencies:
First, you’ll need to create an Ethereum wallet like Argent, Metamask, Gemini, or Rainbow.
Next, you’ll set up your new wallet and connect your bank account.
Once you’ve deposited fiat currency in your wallet you can exchange it for Index Coop products like
(DPI) or the
.
You can also earn or buy MKR tokens directly via your favorite decentralized exchange.
Dive deeper
Watch, read, and learn everything you need to master our leverage tokens.
Subscribe to our newsletter
Join over 6,000 subscribers in receiving weekly updates about our products, DeFi, and the onchain structured products space.
FAQs
Index Coop yield tokens simplify earning yield in DeFi by automating complex strategies and diversifying across protocols. They are user-friendly and cost-efficient, appealing to both new and seasoned DeFi users.
Leverage tokens automate a leveraged position by utilizing onchain money markets like Aave or Morpho to borrow funds, amplifying a user's exposure to an asset without requiring manual management. The token's smart contracts autonomously handle the borrowing, lending, and rebalancing of assets, maintaining a consistent leverage ratio despite market fluctuations. This automation eliminates the complexities of collateral management and liquidation risks, while also charging low, transparent fees that avoid expensive funding rates often charged by perps.
Index Coop is a decentralized autonomous organization (DAO) that specializes in creating and maintaining onchain structured products. Index Coop aims to democratize access to the crypto market, empowering everyone to participate in the growing digital asset ecosystem with ease.
No, yield automatically compounds and accrues to the token price. The value of the tokens you hold in your wallet will simply go up over time without the need to claim or compound rewards.
Index Coop products protect you from liquidation with automated risk management that rebalances assets to maintain a target leverage ratio that avoids liquidation.
INDEX is the ERC-20 governance token on Ethereum for Index Coop. INDEX empowers its holders to participate in decision-making processes that shape the future of Index Coop.
Yes, all Index Coop products are instantly redeemable for their underlying value at all times.
Yes, all Index Coop smart contracts have been audited by leading independent security firms such as OpenZeppelin, ABDK, Isosiro, & more. There is also an active bug bounty program through ImmuneFi. Audit information is published in the docs here.
Streaming fees (an annual fee paid continuously block-by-block), mint and redeem fees (only on leverage tokens), and borrow costs (interest paid to borrow funds from onchain markets when using leverage).