How does lending work on Aave?

Aave is a DeFi platform that allows users to lend and borrow assets without the services of an intermediary.

As an Aave lender, you deposit the assets you wish to lend. These assets are put into a liquidity pool. Borrowers then draw from those pools when they qualify for loans. You can trade or transfer your assets anytime since Aave is a non-custodial lending protocol.

Importantly, Aave issues two tokens to facilitate smooth lending and borrowing: aTokens, distributed to lenders as interest on their deposits, and AAVE tokens – its native token.

The AAVE token has multiple benefits like discounts to borrowers when they take loans denominated in AAVE and use it as collateral. In addition, AAVE token holders who use it to pay fees can access loans before they are made public.