As the interest in DeFi is growing more and more, The Cryptonomist decided to sit down and talk with Stani Kulechov, CEO of ETHLend and AAVE, two projects linked to each other that are emerging in the decentralized finance sector.
What’s the difference between AAVE and Compound or DAI?
Aave provides a money lending market similar to Compound. The major difference is that Aave extends the Decentralized Finance (DeFi) narrative by not simply focusing on the total locked amount of assets, rather also re-using these locked assets within the Ethereum ecosystem. You see, today the DeFi space is measured in the amount of assets these smart contracts are holding, which is roughly around 700 million USD worth.
Instead of keeping the assets locked, Aave developed a feature called Flash Loans. This feature enables anyone to borrow 100% undercollateralized loans from the protocol, which could be used in various use-cases such as arbitrage, refinancing and liquidity. For example, you could refinance your Dai loan from Compound to another lending protocol where there is a cheaper rate without returning the loan by using a service that borrows Dai Flash Loan from Aave, repays the Compound Dai loan, sends the collateral ETH to another protocol to borrow again Dai with lower rate and returning the Flash Loan to Aave. Flash loans are super cool because they are the first uncollateralized loan option in DeFi.
Besides earning interest on the lending, depositors are earning through Flash Loan from other lending protocols such as Compound. This ignites the DeFi composability and allows developers to build new DeFi products as well and channel the earnings back to Aave depositors.
By itself Aave Protocol is aiming to on-board more consumption by creating additional offerings such as the stable interest rate. Typically, in DeFi you are borrowing on a variable rate, which is changing depending on the supply and demand of stablecoins. To provide more security for the borrower, Aave introduces a stable rate which locks the users to a fixed rate. The rate can be also switched block-by-block basis between variable and stable rate, allowing more control for the finances and encourages users to use more DeFi.
Finally, Aave Interest-bearing tokens aka. “aTokens” are a new feature that makes Aave Protocol very exciting for depositors. When you deposit an asset, a contract mints an equivalent amount of aTokens which are then distributed to the depositor. These aTokens, such as aDai, can be freely stored, transferred, and traded. While the underlying asset is loaned out to borrowers, aTokens accrue interest in real time right in your wallet. This way your money is always doing something for you and is credited to your address without any middlemen taking a cut from your interest. How cool is that!
When do you think DeFi will reach mass adoption?
At Aave we want to bring DeFi into the mainstream, but there are some hurdles to overcome first. Anything with blockchain technology can seem daunting, and until the user experience is super friendly and straightforward, it will be tricky to onboard users with no previous crypto knowledge. However, GenZ and the younger generations are not putting their money into old bank accounts anymore. They don’t want their money to just sleep in an account, so they look for options where they can earn interest and make their money work for them. DeFi is already becoming increasingly mainstream, so we are excited to see how this plays out in the future.
Do you think the eventual mass adoption of DeFi products will lead to an increase of price for ETH?
Hard to predict the future of the market, however one thing is for sure, there are more developers and functional applications on the Ethereum blockchain than ever before. With mass adoption comes increased popularity and more people putting funds into ETH. I think the price will correspond with the rise of DeFi especially considering that the institutional interest is rising.
Why did you decide to start a partnership with Chainlink? Do you think oracles will have a great importance in the future of blockchain tech?
For Aave Protocol to be effective, we need to make sure prices reflect real-time conditions. Some of these lending rates/prices exist off-chain, and so we decided to leverage Chainlink’s decentralized oracles to bring the data on-chain. Additionally, we wanted to make sure Aave Protocol was decentralized all the way, so Chainlink was the natural choice. Using Chainlink meant we were ready for market much faster than if we had built our own oracle system. Chainlink guarantees decentralization and security. I believe the future of DeFi is very connected to interchain communication, leveraging both on-chain and off-chain data, and oracles will play a major role in this.
ICOs are now viewed in a very bad way. Do you ever regret organizing your ICO?
Token Distribution Events were the narrative during 2017. However, I would not see that having done fundraising in the form of token distribution has any negative impact. That is the status quo especially in the SF and London DeFi scene currently. Especially if the token governs an open source protocol such as Aave that belongs to everyone. Being able to have a token, such as Aave with the LEND token, enables us to distribute the ownership of the protocol in a decentralized manner and reduce the power of the team.
Currently we are upgrading our tokenomics to reflect our protocol and implementing governance model that is reviewed by external auditors. Being able to participate in the governance of a financial money market such as the Aave Protocol is crucially important for the future of finance. We don’t want to build anything that we would need to control, instead we want anyone to be able to participate in the governance of these protocols, that’s the point of DeFi.