If you’ve spent any time in DeFi, you’ve probably heard of Aave. With over $38 billion locked across multiple chains¹⁴, it’s become the go-to lending protocol for both retail users and institutions. But how did a project that started as “ETHLend” in 2017 transform into the DeFi powerhouse we know today?
Let me take you through everything you need to know about Aave — from its humble beginnings to its current dominance, and why it matters for the future of finance.
Back in 2017, Stani Kulechov, a law student in Finland, had an idea. What if people could lend and borrow cryptocurrency without going through a bank? This wasn’t a new concept — peer-to-peer lending existed — but Stani wanted to do it on Ethereum.
ETHLend launched with an ICO that raised $16.2 million in November 2017 ¹. The platform used LEND tokens and smart contracts to enable peer-to-peer lending with cryptocurrency collateral.
But there was a problem.
Finding matches was inefficient, liquidity was fragmented, and the user experience was clunky. By 2018, with only $3 million in loan volume, it became clear that the peer-to-peer model wasn’t working².
So the team pivoted.
In January 2020, they launched Aave (Finnish for “ghost”) on mainnet and introduced a pool-based model³. Instead of matching individual lenders with borrowers, Aave created shared liquidity pools. The LEND token was migrated to AAVE at a 100:1 ratio in October 2020⁴.
The transformation was dramatic. Within months, Aave grew from a struggling startup to reaching $1 billion TVL by August 2020⁵.
At its core, Aave is beautifully simple. Here’s the flow:
The magic happens through interest rate algorithms. When demand for borrowing is high, rates go up, incentivizing more deposits and fewer loans. When demand is low, rates drop. It’s pure market dynamics at work.
Aave didn’t just copy existing models — they innovated. Here are the game-changers:
Introduced in January 2020, Aave pioneered uncollateralized loans that must be repaid within the same transaction⁶. Sound crazy? These enable arbitrage, collateral swaps, and self-liquidations. As of 2024, over $7 billion in flash loans have been executed⁷.
Borrowers can switch between stable and variable interest rates, hedging against market volatility⁸.
Depositors can delegate their credit lines to others, enabling uncollateralized loans based on trust⁹.
Part of V3 (launched March 2022), newer, riskier assets can be listed with restrictions, protecting the protocol while enabling innovation¹⁰.
Borrowing power increases when collateral and borrowed assets are correlated (like stETH and ETH), improving capital efficiency by up to 98% LTV¹¹.
Aave recognized early that DeFi wouldn’t live on Ethereum alone. Their deployments include:
Each deployment passed through Aave’s governance process, with risk assessments by Gauntlet and other risk managers¹³.
Total Value Locked ~$38–40 billion¹⁴’¹⁵
Cumulative Revenue $170 million²⁰
2025 Revenue (YTD) $57 million (1.44x higher than 2024)²⁰
Daily Revenue Growth 187% over the past 90 days²⁰
Market Cap ~$4.9 billion¹⁶’¹⁹
Market Share Nearly a quarter of DeFi’s total TVL¹⁴
During June 2024, Aave was generating $115 million in annualized revenue²¹, demonstrating strong protocol economics even before the recent surge.
No DeFi protocol is risk-free, and Aave is no exception:
Despite multiple audits, bugs could exist. The protocol has bug bounties up to $250,000.
On August 6, 2024, Aave v3 saw $234 million in liquidations, including $137 million WETH²³. If your collateral drops in value, you can lose it.
Aave relies on price feeds from Chainlink. If these fail or get manipulated, bad things happen.
AAVE token holders control the protocol. Poor decisions could harm users.
While peripheral contracts have seen minor exploits (like the $56,000 ParaSwapRepayAdapter incident)²⁴, the core Aave protocol has remained resilient.
AAVE isn’t just a governance token — it’s the protocol’s backstop. Holders can:
With only 16 million tokens in circulation and strong utility, AAVE has performed well despite bear markets. As of 2025, $958.51 million worth of AAVE is staked (19.33% of market cap)¹⁶.
Aave isn’t just another DeFi protocol — it’s financial infrastructure. Traditional finance is watching and learning. Several banks are exploring how to integrate with or replicate Aave’s model.
The protocol proves that:
For the past two years, Aave has consistently captured between 60% and 80% of all revenue generated in the lending sector²⁰, demonstrating its market dominance.
Ready to try it? Here’s your checklist:
Aave transformed from a failed peer-to-peer lending platform into DeFi’s most trusted lending protocol. It’s not perfect — no protocol is — but it’s proven resilient through multiple market cycles.
Whether you’re looking to earn yield on stablecoins, leverage your ETH position, or build on top of DeFi infrastructure, Aave offers battle-tested solutions. As traditional finance slowly embraces blockchain, protocols like Aave are showing the way forward.
The ghost of Finnish innovation continues to haunt traditional banking, and that’s probably a good thing.
Next week in DeFi Weekly: We’ll dive into Compound, the protocol that pioneered algorithmic interest rates and sparked the DeFi summer of 2020.
Have questions about Aave? Want to suggest the next protocol we cover? Drop a comment below.
DeFi Aave Cryptocurrency Blockchain Ethereum
Understanding Aave: The DeFi Lending Giant That Changed Everything was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.
