Aave is an open source and non-custodial liquidity protocol for earning interest on deposits and borrowing assets.

For clarity, users are either depositors or borrowers.  Depositors are those who make liquidity possible. They do this to earn a passive income.  Borrowers in the Aave ecosystem either borrow over collaterally or under collaterally.  Those who borrow over collateralized will be able to borrow perpetually and those who borrow in an under collateralized fashion will make it in an one-block liquidity fashion.

With proper understanding, Aave team and members of the community will be able to user the Aave liquidity in a better way.

While there are several lending protocols, the Aave Protocol is audited, secured, and completely open source.  This permits anyone to interact with the user interface client, API, or directly with the smart contracts based on the Ethereum network.

Since Aave is open source, users will be able to build any third-party service or application which will be able to interact with the protocol to further enrich their product.

Those who are looking to use the service as a depositor will be able to use the service by simply depositing the preferred asset and amount.

After depositing, users will be able to earn passive income based on the market’s borrowing demand.  Further, depositing assets permits users to borrow by using their deposited assets as a collateral. Also, any kind of interest that one will be able to earn by the deposit of funds will help them offset the interest rate that is accumulated by borrowing.

There is a cost for the service facilitated by Aave.  There are two types of fees on the platform.

The Aave docs states, “From borrowers, a 0.00001% of the loan amount is collected on loan origination (only in V1), from which 20% is used for referral integrations and 80% is allocated in the protocol fund. From Flash Loans, a 0.09% is collected from the loan amount, from which 70% is redirected as extra income for depositors of the protocol and 30% is split using the same 20%/80% model of the origination fee. There are also transaction fees for Ethereum Blockchain usage, which depend on the network status and transaction complexity.”

The deposited funds are allocated in the smart contract.  Users will be able to withdraw their funds from the pool on-demand or they can export a tokenized (aTokens) version of the lender position. Further, the aTokens can be moved and traded like any other cryptographic asset on Ethereum.