# What Is Aave? By [Amrit](https://paragraph.com/@argha-2) · 2023-04-04 --- Aave is a decentralized [cryptocurrency](https://www.investopedia.com/terms/c/cryptocurrency.asp) platform that allows users to borrow and lend crypto. Aave uses smart contracts to automate the process, with preset rules on how funds are distributed, how collateral is handled, and how fees are assessed.  Aave specializes in [overcollateralized](https://www.investopedia.com/terms/o/overcollateralization.asp) loans, meaning that users will need to deposit crypto worth more than the amount that they wish to borrow. This protects lenders from losing money due to loan [defaults](https://www.investopedia.com/terms/d/default2.asp) and allows the Aave protocol to [liquidate](https://www.investopedia.com/terms/l/liquidation.asp) the collateral if it drops too much in value. Aave also offers a native crypto token (AAVE) that can be traded on most exchanges or staked in the Aave platform to earn interest. Staking is how crypto miners earn rewards for validating transactions on a [proof-of-stake blockchain](https://www.investopedia.com/terms/p/proof-stake-pos.asp) like the one that underlies Aave. How Does Aave Work? ------------------- Aave is an Ethereum-based protocol that offers automated crypto loans. Users can deposit cryptocurrency as [collateral](https://www.investopedia.com/terms/c/collateral.asp) and borrow other cryptocurrencies, up to a certain percentage of the collateral value. This is known as the [loan-to-value (LTV)](https://www.investopedia.com/terms/l/loantovalue.asp), and Aave limits the borrowed amount to 80% of the current value of the pledged collateral. Aave uses [smart contracts](https://www.investopedia.com/terms/s/smart-contracts.asp), which are programs that automate the borrowing process by calculating the loan terms, collecting the deposited collateral, and distributing the cryptocurrency being borrowed. Smart contracts are what enable Aave to operate without the need for a third-party intermediary. ### Aave Lending To lend crypto on Aave, users can connect a [digital wallet](https://www.investopedia.com/terms/d/digital-wallet.asp) to the platform and search through a list of assets that support deposits. Deposits offer a fixed [annual percentage yield (APY)](https://www.investopedia.com/terms/a/apy.asp) that is paid out in the same asset in which it is deposited. For example, if a user deposits [Ether (ETH)](https://www.investopedia.com/terms/e/ether-cryptocurrency.asp), the interest is paid out in ETH. The Aave exchange offers access to several cryptocurrencies, including: * Ether (ETH) * Dai (DAI) * Aave (AAVE) * U.S. Dollar Coin (USDC) * Tether (USDT) ### Aave Borrowing To borrow crypto on the Aave platform, users will need to first supply crypto on the platform as collateral. Once the collateral is deposited into the liquidity pools, users actually earn [interest](https://www.investopedia.com/terms/i/interest.asp) on these deposits --- *Originally published on [Amrit](https://paragraph.com/@argha-2/what-is-aave)*