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Risk Warning - Notice to UK Users  

Estimated reading time: 2 mins

Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.

What are the key risks?

1.You could lose all the money you invest

The performance of most cryptoassets can be highly volatile, with their value dropping as quickly as it can rise. You should be prepared to lose all the money you invest in crypto assets.

The crypto asset market is largely unregulated. There is a risk of losing money or any cryptoassets you purchase due to risks such as cyber-attacks, financial crime and firm failure.

2.You should not expect to be protected if something goes wrong

The Financial Services Compensation Scheme (FSCS) doesn’t protect this type of investment because it’s not a ‘specified investment’ under the UK regulatory regime – in other words, this type of investment isn’t recognised as the sort of investment that the FSCS can protect. Learn more by using the FSCS investment protection checker here.

The Financial Ombudsman Service (FOS) will not be able to consider complaints related to this firm. Learn more about FOS protection here.

3.You may not be able to sell your investment when you want to

There is no guarantee that investments in crypto assets can be easily sold at any given time. The ability to sell a crypto asset depends on various factors, including the supply and demand in the market at that time.

Operational failings such as technology outages, cyber-attacks and comingling of funds could cause unwanted delay and you may be unable to sell your crypto assets at the time you want.

4.Cryptoasset investments can be complex

Investments in crypto assets can be complex, making it difficult to understand the risks associated with the investment.

You should do your own research before investing. If something sounds too good to be true, itprobably is.

5.Don’t put all your eggs in one basket

Putting all your money into a single type of investment is risky. Spreading your money across different investments makes you less dependent on any one to do well.

A good rule of thumb is not to invest more than 10% of your money in high-risk investments. Learn more here.

If you are interested in learning more about how to protect yourself, visit the FCA’s website here.

For further information about cryptoassets, visit the FCA’s website here.

What is Aave (AAVE) ?

Let's take a dive into what is Aave and its token AAVE

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Aave is one of the leading decentralized finance (DeFi) protocols on the market, allowing users to easily borrow and lend over 20 different crypto assets. Leveraging the age-old financial practice of lending and borrowing, the platform empowers users to manage their assets in a decentralized manner.

The Aave token also allows users to vote on the platform’s direction and future Aave protocol developments. Aave token holders are granted voting rights based on their holdings.

What is Aave?

Created in response to the rising demand for decentralized money markets, Aave has successfully and firmly positioned itself in the top 10 biggest DeFi markets. Based on the Ethereum blockchain, the protocol allows users to lend and borrow a wide range of cryptocurrencies, from altcoins to stablecoins.

Native to the platform, the AAVE token acts as both a utility token, providing discounts for fees, and a governance token.

By placing digital assets into specific liquidity pools within the Aave protocol, lenders earn interest. Those who need money can use crypto as collateral to take out a flash loan from these same pools.

The decentralized lending protocol was launched in November 2018 under the name ETHLend (with LEND tokens) but later underwent a rebranding after losing traction in the 2018 crypto bear market. After revamping the concept of decentralized crypto lending, the Aave team relaunched the protocol under the name Aave. Aave means ghost in Finnish.

Who created Aave?

Aave was created by Stani Kulechov and a team of developers. Stani Kulechov was disappointed with the lack of lending applications available on Ethereum, so he and a team of developers took it upon themselves to create a space to lend and borrow cryptocurrencies. This project occurred before decentralized finance was even an idea, and launched following an ICO in November 2017.

Kulechov is a self-taught programmer who went to law school after high school and began programming in his teenage years. He is also an early blockchain adopter. The CEO announced that he intended to rebrand ETHLend as Aave in order to provide additional services beyond just ETH lending, incorporating the greater crypto assets market.

How does Aave work for Aave users?

The Aave protocol uses an algorithm that automatically enables loans from the platform's liquidity pools, instead of individually matching each lender to a borrower. On the Aave network, lenders can deposit their cryptocurrency into liquidity pools and in turn earn interest based on the amount deposited.

These interest rates are then paid to the lenders depending on the number of assets being used in the pool. For instance, if all the assets are being utilized, the interest rates are higher as this will provide greater incentive to lenders and more deposit options for Aave borrowers. If utilization is low, the interest rates are lower, attracting more borrowers. Borrowers and lenders are mutually dependent.

Aave loans require users to make a deposit in the form of collateral that is higher in value than the amount they are borrowing. If borrowed assets are not returned within the given timeframe, lenders will take possession of the collateral.

Aave employs a liquidation procedure in the event that the collateral value falls below the collateralization rate established and determined by the Aave protocol. Flash loans are also available, allowing borrowers to borrow money without putting up any assets as long as they pay for the interest fee known as one-block.

What are AAVE tokens?

AAVE is an ERC-20 token that acts as a backstop for the Aave protocol, protecting the system from having a shortage of capital. Known as the "Safety Module", AAVE is sold for assets to cover the deficit if there isn't enough cash in the DeFi protocol to cover lenders' money. Only AAVE deposited in the module will be liquidated. To encourage deposits, a regular yield is paid out in AAVE.

The second major application for Aave is protocol governance. Holders of the cryptocurrency can discuss and vote on Aave Improvement Proposals, which may be implemented if accepted by a specified number of AAVE token holders. This covers altering the money market parameters as well as managing funds in the ecosystem reserve, similar to other governance cryptocurrencies. Each AAVE equals one voting right for Aave holders.

The Aave system uses fees paid on the platform to buy back AAVE tokens and remove them from circulation. Approximately 80% of the fees paid are used for this burn purpose, while 20% are used to incentivize lenders. Aave has a limited supply of 16 million units.

How can I buy the AAVE token?

For those looking to enter the world of DeFi and incorporate Aave into their crypto portfolios, things just got a lot easier. The Tap app has recently added AAVE to the list of supported currencies, allowing anyone with a Tap account to quickly and conveniently buy Aave.

Users can buy / sell AAVE by using balances in either their crypto or fiat wallets or can buy the cryptocurrency with traditional payment options like bank transfers. Through the integrated wallets on the platform, users can also store and manage their AAVE holdings easily and conveniently.


This article is for general information purposes only and is not intended to constitute legal or other professional advice or a recommendation of any kind whatsoever and should not be relied upon or treated as a substitute for specific advice relevant to particular circumstances. We make no warranties, representations or undertakings about any of the content of this article (including, without limitation, as to the quality, accuracy, completeness or fitness for any particular purpose of such content), or any content of any other material referred to or accessed by hyperlinks through this article. We make no representations, warranties or guarantees, whether express or implied, that the content on our site is accurate, complete or up-to-date.


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