ParaFi Capital invests US$4.5M in Aave

Stani Kulechov launched ETHLend in 2017. The company offered digital asset-backed loans and allowed anyone to spend funds without selling crypto holdings. In September 2018, Kulechov announced the launch of ETHLends new parent company, Aave, a new technology company focused on empowering people through innovation.

Aave is described as an open-source and non-custodial protocol enabling the creation of money markets. Users can earn interest on deposits and borrow assets. The technology-based venture intends to fill the gaps left by centralized fintech industry players such as PayPal, Skrill, and Coinbase, by introducing new products and services, such as Aave Pocket, Aave Lending (SaaS), Aave Gaming, Aave Custody, and Aave Clearing.

Close to a year after the announcement of Aave, in July 2019, the team announced that the first iteration of the Decentralised Lending Pool (DLP) protocol is live on the Kovan Testnet, “representing the first step towards the launch of the next iteration of lending products developed by Aave.”

In the first week of January 2020, Aave went live on the Ethereum (ETH) mainnet. The platform launched with 16 supported assets, of which 13 can be used as collateral. According to the company’s website, Aave’s code has undergone two external security audits, and they maintain a bug bounty program, which would reward anyone who finds a bug with US$250K.

The mainnet announcement also included the introduction of new features such as Flash loans. Flash loans are supposedly one of the most innovative features of the Aave protocol. With flash loans, users can borrow instantly and easily, with no collateral needed.

According to the post, the product is “designed for developers/people with some technical knowledge, flash loans enable a customised smart contract to borrow assets from our reserve pools within one transaction on the condition that the liquidity is returned to the pool before the transaction ends. If this does not happen, the transaction is reversed to effectively undo the actions executed until that point, guaranteeing the safety of the funds in the reserve pool.”

Aave protocol also introduced a novel tokenization model compared to the current interest-bearing tokens available on the market such as cDAI/Chai. “Instead of being defined by an exchange rate against the underlying asset,” the company explained, “the Aave interest-bearing tokens (aTokens for short) are pegged 1:1 to the value of the underlying asset, and they increase in balance rather than in value.”

The company plans to provide the first open-source lending market protocol in which the decisional power is in the hand of the users, specifically the LEND token holders. “As soon as the governance is ready to be released, we will migrate the ownership to the governance contracts,” states the company, “where LEND holders will be able to vote on smart contract updates and configuration changes.” The governance model has been built and is currently in the process of being thoroughly tested and audited. Currently, Aave will maintain the ownership of the protocol in order to be able to react quickly to any potential issue that should arise.

In late January it was announced that ETHLend will discontinue operations. A note on the website said, “To all good things come an end. We are proud to say we have launched Aave. Aave is an easier and quicker way to provide liquidity or borrow assets.”

In June, five months after the mainnet launch, Aave announced that they have reached US$100M in market size. According to Defipulse and as of the date of this article, Aave is the 5th highest DeFi platform in market cap with US$158.4M in total value locked.

The company recently announced the US$4.5M from investment firm ParaFi Capital. ParaFi Capital is an alternative investment firm founded in 2018, which is focused on blockchain and decentralised finance markets. ParaFi Capitals portfolio companies include MakerDAO (MKR), Compound (COMPOUND) and Kyber (KNC).

MakerDAO and Compund are the top two DeFi platforms according to Defipulse, with US$624.9M and US$681.6M locked in their smart contracts, respectively.

“We were initially drawn to the novelty of Aave’s Flash Loans, which solve for market inefficiencies across DeFi markets, and unlock new use cases,” said Santiago Roel Santos, a partner at ParaFi. “We look forward to actively participating in governance and supporting the growth of the protocol.”