Aave: The Growth of DeFi & Crypto Economy w/ Stani Kulechov

Hosted by Mo Syed from Paris, this special episode of the Ledger podcast features Stani Kulechov, the founder and CEO of Aave, a pioneer in decentralized finance (DeFi), and Fabrice Dautry, Ledger’s Head of Coin Integration. 

The discussion explores the profound impact of DeFi on traditional finance, Aave’s remarkable success as a leading lending protocol, and the future trajectory of the crypto economy.

Key Highlights:

Bitcoin, Cryptocurrencies, and the DeFi Revolution

“DeFi is too big to ignore and this is just the beginning.” – Stani Kulechov

The episode begins by setting the stage for the decentralized finance (DeFi) revolution, noting that DeFi is disrupting finance as we know it. Its potential is described as enormous, with its ecosystem attracting entrepreneurs, policymakers, and investors. 

The growth has been explosive, with DeFi’s growth in 2020 taking “the world by storm growing by triple digits and it has already more than doubled in 2021”. Within this vibrant context, 

Aave stands out as the largest lending protocol, boasting more than 11 billion dollars in total value dock. 

What Does Aave Mean?

The name Aave (pronounced “ah-veh”) means “ghosts” in Finnish language, according to Stani Kulechov. This choice reflects a core principle of the protocol, where the Aave genesis team, after deploying the protocols, 

“The whole governance [on Aave] becomes governed by the users and the community of Aave, which means the team becomes a bit like a ghost and also because the protocol runs autonomously”. – Stani Kulechov.

Smart Contracts: The Core of DeFi

Stani Kulechov’s background in law and fintech, blended with his interest in finance, is at the core of DeFi’s essence. The creation of DeFi and his move into the web3 space was ignited by the invention of smart contracts.

The “Trustless” Nature of DeFi

DeFi is often described as trustless because code is low, as Fabrice Dautry explains.

“You don’t need to have trust in someone to execute it for you or to solve any dispute that you may face because essentially everything is public, everything is visible on chain and everything will self-execute”. – Fabrice Dautry.

While trustless in execution, Fabrice clarifies that this doesn’t mean that it’s perfectly safe because it might contain bugs. It’s not always perfect.

Aave Integration with Ledger Live

A significant announcement made during the episode is that Aave is now available on Ledger Live, allowing users to access a wide variety of lending and borrowing services. highlights the benefits: 

“I think having a protocol like Aave integrated natively in ledger live will offer our users many many possibilities” – Fabrice Dautry

Aave’s Impressive Growth and Total Value Locked (TVL)

Aave has recently witnessed a ~10x growth in its Total Value Locked (TVL) in a year.

• TVL Explained: Stani explains that TVL itself is just a metric kind of like to show how much value those protocols are actually holding at the current moment. He adds, the higher the TVL is the more the users are trusting the protocol or more capital is aggregated. 
• Aave’s Scale: Aave is currently the biggest DeFi protocol out there so there’s over 10 billion worth of value just locked in the smart contract. 
• DeFi’s Potential: The entire DeFi market, while growing, is still quite small compared to traditional finance with a total value of 55 billion.

Decentralized Governance and Community Control

Aave’s decentralized governance model is a prime example of blockchain’s use cases, enabling plenty of people globally to vote on some particular topics in a cryptographically secure way.

Addressing Trust Frictions and Mass Adoption

The crypto space faces challenges like scams, rock pools and hacks, which create friction for mass adoption and trust.

“In the future… it could be just a one-click button -> put your money here and somehow something happens and you generate yield behind the scene” – Fabrice Dautry 

Fabrice expresses hope that this moves DeFi from a bit of an expert field to a user-friendly experience.

DeFi’s Competition with Traditional Finance

DeFi is seen as a software, and it’s actually even more like a movement that can replace legacy financial systems, according to Stani Kulechov.

Stani emphasizes that everything that one deployed into any one network is interoperable with all the networks.

• Liquidity Ocean: DeFi functions as a marketplace for liquidity like this big liquidity ocean where developers building new algorithms are all the time competing against each other and also the traditional financial system to be more efficient.  
• Openness and Innovation: The openness of the networks that anyone can come and participate in but also build – so anyone can build new products on top of DeFi and that creates a lot of network effects and progress in terms of innovation. 
• Future Landscape: Stani predicts that “all the coinbase spaces of the world will just pretty much be front ends and access points to decentralized finance including fintech.

Aave Pro: Bridging Institutions to DeFi

Aave has developed Aave Pro, an institutional project designed to make institutions more comfortable using Defi.

Aave Pro, offers institutions a compliant, private pool with whitelisting functionality for specific addresses and additional requirements. 

Custodians act as whitelisters for their users. Despite being permissioned, Aave Pro maintains transparency and auditability on the public Ethereum network, offering a clear, auditable environment unlike the 2008 financial crisis. 

What is Missing for Full-Scale Institutional Adoption?

While DeFi protocols are maturing to the stage where it’s mature enough for institutions to come in, Fabrice Dautry identifies a key missing piece: one of the things that is still missing and surely growing in the industry are solutions to help these professionals to manage their assets in a secure way.

Fabrice highlights that blockchain operations are irreversible due to their trustless and decentralized nature. He also notes a critical gap for institutions (hedge funds, family offices): the lack of user-friendly tools for key management and robust governance. 

Ledger is addressing this by developing enterprise solutions to provide secure and transparent tools for institutions to manage various protocols and oversee operator actions.

Watch the episode below:

Tips for Crypto First Graders

Stani Kulechov emphasizes: 

“Learn as much as possible and [as much as] you can, it’s really is about the education [in web3]”.

He reiterates that education is the most important thing, as understanding the protocols, governance, and wider impact is essential.

The Evolution of Over-Collateralization

DeFi lending currently requires liquid collateral, but Aave envisions a future with non-fungible collateral like on-chain reputation. Aave’s credit delegation feature allows users to delegate borrowing power from their deposits, enabling future products like undercollateralized loans or peer-to-peer liquidity delegation. Building in DeFi is like constructing with Legos; smart contracts are specialized bricks that can be combined (composability) to create complex financial structures.