What is the Aave protocol?
Aave is a decentralized lending protocol that lets you lend and borrow cryptocurrencies, and earn yield on deposits. The project is still relatively new, as all DeFi (decentralized finance) projects are, but as of May 2021 Aave boasts over $19 billion of total value locked-in (total crypto assets deposited into the protocol’s smart contracts.)
An advantage to using Aave over a traditional lending option is that there is no loan “application” - if you have deposited a sufficient amount of collateral, you can instantly borrow another crypto asset against your deposit amount. This is also advantageous over direct trading in that you don’t lose your position on the deposited asset the way you would if you sold it in exchange for another asset.
Aave operates on the Ethereum blockchain. Aave is decentralized and open source, and through what it calls “Aavenomics,” anyone with enough AAVE can vote on the platform’s governance and development proposals.
What is the AAVE token?
Much like many other DeFi protocols wanting distributed governance, Aave’s governance and development proposals are voted on by holders of its governance token, AAVE. Unlike tokens minted directly, AAVE is a functional iteration of its first token, LEND. Aave issued LEND via token sale in 2017, using the proceeds to fund development for the platform. In October 2020, the founding team behind the Aave protocol converted the LEND tokens into AAVE to support the governance framework is uses now.
AAVE is an ERC-20 token, meaning it runs on the Ethereum blockchain. Unlike Ethereum or Bitcoin, you can’t mine the token. Instead, you can buy it via supporting exchange, and you can also choose to stake it and earn additional incentives. Aave is secured by a Safety Module (SM), a staking mechanism for AAVE tokens to act as insurance against Shortfall Events. Stakers earn AAVE as Safety Incentives along with a percentage of protocol fees. The staking process also leverages the Balancer platform using an AAVE/ETH pairing that incentivizes market liquidity and earns BAL in return.
AAVE also conveys voting rights so that holders can vote on AIPs - Aave Improvement Proposals - to have a say in how the protocol evolves.
Before trading any crypto assets it is important to understand the risks. This overview is a starting point for you to perform your own research prior to investing in a crypto asset.
No securities regulatory authority or regulator in Canada has evaluated or endorsed the Crypto Contracts or any of the crypto assets made available through the platform.
Wealthsimple has performed an assessment of whether AAVE can be supported by Wealthsimple’s platform, including whether AAVE is a security and/or a derivative and is being offered in compliance with securities and derivatives laws.
We evaluated Aave based on publicly available information, including (but not limited to):
- The creation, governance, usage and design of Aave, including the source code, security and roadmap for growth in the developer community and, if applicable, the background of the developer(s) team that first created Aave;
- The supply, demand, maturity, utility and liquidity of Aave;
- Material technical risks associated with Aave, including any code defects, security breaches and other threats concerning Aave and its supporting blockchain (such as the susceptibility to hacking and impact of forking), or the practices and protocols that apply to them;
- Legal and regulatory risks associated with Aave, including any pending, potential, or prior civil, regulatory, criminal, or enforcement action relating to the issuance, distribution, or use of AAVE; and
- Statements made by regulators or securities regulatory authorities in Canada and other jurisdictions regarding whether AAVE, or generally about whether the type of crypto asset, is a security and/or a derivative.
Wealthsimple monitors ongoing developments related to crypto assets available on its platform for significant changes that may affect Wealthsimple’s original assessment of those assets, including Wealthsimple’s assessment of the application of securities and derivatives laws. Any significant changes relating to AAVE may result in changes to this Crypto Asset Statement and/or Wealthsimple’s ability to support AAVE.
Like all other crypto assets, there are some general risks to investing in AAVE. These include short history risk, volatility risk, liquidity risk, demand risk, forking risk, cryptography risk, regulatory risk, concentration risk, electronic trading risk and cyber security risk. Please review the Wealthsimple Crypto Product Risk Disclosure for additional discussion of general risks associated with the crypto assets made available through the platform.
We emphasize that this Crypto Asset Statement is not exhaustive of all risks associated with trading AAVE. Investors should perform their own assessment to determine the appropriate level of risk for their personal circumstances.
Wealthsimple is offering Crypto Contracts in reliance on a prospectus exemption contained in the exemptive relief decision Re Wealthsimple Investments Inc. dated December 18, 2023 (the Decision).
The statutory rights of action for damages and rescission in section 130.1 of the Securities Act (Ontario), and, if applicable, similar statutory rights under securities legislation of other jurisdictions of Canada, do not apply in respect of this Crypto Asset Statement to the extent a Crypto Contract is distributed under the prospectus relief in the Decision.
Last updated: January 1, 2024