Aave is a decentralized lending protocol on the Ethereum blockchain that operates without custodians. It enables users to borrow and lend cryptocurrencies using automated smart contracts. Aave employs overcollateralization for loans, which helps to secure the interests of lenders.
The Aave system uses dual tokens. Tokens are given to lenders as evidence of their deposits and interest payments. The native AAVE tokens act as governance tokens, offering voting rights in protocol decisions, and they play a key role in the platform's safety module, providing security and rewards for stakers
AAVE can be used as collateral for securing loans on the platform. Borrowers can deposit AAVE tokens to back their loans, ensuring that lenders' funds are protected from potential defaults. Additionally, users can stake AAVE tokens in the Safety Module to earn interest. This staking mechanism helps secure the network and provides a safety net in case of capital shortages.