Crypto Asset Statement: AAVE (Aave Token)
Last updated: May 15, 2023
About this Statement
CatalX CTS (“Catalyx” or “we”) strives to provide our users with information to assist in understanding crypto assets that are offered for trading on the Catalyx platform (the “Platform”). One of the crypto assets we offer on the Platform is Aave (AAVE). This summary sets out certain key information about Aave as well as some of the risks involved in trading it. While we tried to describe the key features of Aave here, this summary doesn’t provide all relevant information on Aave. We encourage users to perform their own research in order to understand any crypto asset that they intend to trade on the Platform.
History & Characteristics of Aave
Founded in 2017 by Stani Kulechov, Aave is an open-source, decentralized lending platform built on the Ethereum network with an ICO held in 2017. Currently, Aave supports 17 different cryptocurrencies and uses a peer-to-peer (P2P) lending system, or “pool-based” process, which allows users to participate as both depositors and borrowers. Aave provides its users with the ability to switch between stable and fixed interest rates which is accomplished by Aave’s utilization of Chainlink, thereby providing up-to-date valuations of locked-in crypto assets.
AAVE was originally launched in 2017 as ETHLend (as the LEND token) but was later swapped 100:1 to become the AAVE coin, which is the current native token of the Aave protocol. AAVE runs on a non-custodial platform which gives users the ability to borrow, lend, and earn interest on stable- and altcoins cryptocurrency assets without having to own them directly. The program is built on Ethereum and utilizes the blockchain’s decentralization and security to serve as a high-yield savings account for cryptocurrencies and stablecoins. Nevertheless, at this point, Catalyx users cannot participate in the interest-earning functions of AAVE.
What is the Aave Token?
The Aave Token (AAVE) is the native token of the Aave Protocol. AAVE is an ERC-20 token which is primarily used as a governance token. The token is used for voting and deciding the outcomes of the platform’s Aave improvement proposals (AIPs)—proposals to improve the Protocol. Additionally, the token offers an advantage in that users who deposit AAVE as collateral can get a transaction fee discount, and the users who borrow the AAVE are not charged any fee. AAVE is a deflationary token, and almost 80% of the fee collected by the system is used to burn AAVE.
This overview provides a summary of certain risks associated with Aave. We emphasize that this Crypto Asset Statement is not exhaustive of all risks associated with trading Aave, and in addition, does not take into account an individual’s particular situation or risk tolerance. Purchasers are encouraged to conduct their own research prior to trading any crypto asset on the Platform. Catalyx users should read the Risk Disclosure Statement for additional discussion of general risks associated with crypto assets made available through the Catalyx platform.
AAVE Protocol Risks. Since Aave Protocol is unique in the way it tokenizes deposits as tokens, the value of AAVE is highly dependent on the stability and security of the Aave Protocol. As a crypto-lending platform, Aave Protocol relies on the security of each lended asset to maintain the integrity of the protocol and the ecosystem. Consequently, Aave evaluates token risk using a defined methodology with highly technical, complex factors and quantitative metrics. The Aave risk framework has been established and is publicly available at https://docs.aave.com/risk.
Dependence on Ethereum and Chainlink. Aave, like many other tokens, is built on top of the Ethereum blockchain. Consequently, Aave relies on the health and continued stability of the Ethereum network to continue to operate as intended. Aave has also integrated with Chainlink to power the Aave Oracle Network. Consequently, Aave relies on the continued stability and health of Chainlink to protect itself against Oracle Network risk. Any fundamental issues in either network could significantly impact Aave’s stability and market capitalization.
Flash Loans on Aave. Flash loans are a feature that allows one to borrow any available amount of an asset without any collateral as long as it is returned to the protocol within one block transaction. The accessibility of flash loans presents the potential for flash loan attacks, where assets from a flash loan are used to manipulate the market in the favour of the lender. While a flash loan attack may not necessarily target Aave, the availability of this mechanism could cause scrutiny from entities that may pose a risk to Aave.
Uncertain regulatory status of DeFi lending platforms. To date, Canadian financial regulators have not taken a firm position on centralized or decentralized crypto lending platforms/protocols. Additionally, many governments have not yet determined if or how they will attempt to regulate this new financial technology. As the regulatory landscape develops, scrutiny from various governing bodies could have an impact on the market capitalization of AAVE.
Please note that these risks and the associated summaries or overviews provided for each in the Risk Disclosure Statement are not intended to be an exhaustive discussion pertaining to all such risks and, in addition, there may be other risks that come with exposure to Aave. We encourage all Catalyx users to perform their own due diligence to assess the risks associated with Aave and to determine whether this level of risk is acceptable to them.
How Catalyx determines which Crypto Assets to List
Catalyx has established robust policies and procedures to review each crypto asset offered for trading on the Platform. Among other information, we review available public information relating to the crypto asset on the following topics prior to making a determination on whether a crypto asset will be listed:
The history and characteristics of the crypto asset including whether the crypto asset was launched by ICO;
Analysis of the founders or inventors of the crypto asset/related network and a review of their ongoing involvement with crypto asset/network;
How the crypto asset functions including a review of its utility or purpose;
The market liquidity for the crypto asset;
The current and proposed governance of the ecosystem on which crypto asset operates with a focus on the level of decentralization of such ecosystem; and
The position taken by any regulator with respect to the crypto asset including any enforcement action taken against the crypto asset, the related network, or the founders.
In addition to the above we also conduct an analysis of factors weighing in favor or against the crypto asset being deemed to be a security based on Canadian securities laws.
No securities regulatory authority in Canada has expressed an opinion about Aave or any of the other crypto contracts or crypto assets made available through the Platform, including an opinion that Aave itself is not a security and/or derivative. Changes to applicable law may adversely affect the use, transfer, exchange, or value of any crypto contracts or crypto assets you hold on the Platform.
Certain statutory rights under securities legislation in Canada do not apply in respect of this Crypto Asset Statement.