Lesson 18 of 19
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Recap of Key Concepts Learned in the Course

In this course, we learned about the AAVE protocol and how to use it as a blockchain developer. We covered a wide range of topics, including the key features and architecture of AAVE, how to install dependencies and set up a local test environment, and how to interact with AAVE smart contracts using Web3.

We also learned about the different types of smart contracts in AAVE, including how to implement lending and borrowing functionality, how to handle liquidation and collateral, and how to utilize AAVE for stablecoin lending and borrowing. Additionally, we explored AAVE governance and how to integrate AAVE with other DeFi protocols.

Below, we will summarize the key concepts learned in this course and provide a recap of the main takeaways.

AAVE Protocol Overview

  • AAVE is a decentralized finance (DeFi) protocol that allows users to lend and borrow a variety of assets, including cryptocurrencies and stablecoins.
  • AAVE uses a variable interest rate model, which means that the interest rate on loans is determined by the supply and demand for each asset.
  • AAVE has a number of key components, including the LendingPool contract, which manages the pool of available assets for lending and borrowing, and the Aave contract, which handles staking and governance.

Installing Dependencies and Tools

  • To get started with AAVE development, you will need to install a number of dependencies and tools, including the Truffle framework, Ganache, and the aave-js library.
  • You can use Truffle to compile and deploy AAVE smart contracts, and Ganache to run a local blockchain for testing purposes.
  • The aave-js library provides an easy-to-use interface for interacting with AAVE smart contracts.

Setting Up a Local AAVE Test Environment

  • To set up a local AAVE test environment, you will need to deploy the AAVE contracts to a local blockchain using Truffle.
  • You can then use MetaMask to connect to your local blockchain and interact with the AAVE contracts using the aave-js library.

Key Components of the AAVE Protocol

  • The LendingPool contract is the main contract for managing the pool of available assets for lending and borrowing. It has a number of methods for lending and borrowing assets, including lendFixed() and borrowFixed() for the fixed rate model, and lendVariable() and borrowVariable() for the variable rate model.
  • The Aave contract handles staking and governance in AAVE. It has methods for staking and unstaking AAVE tokens, and for voting on governance proposals.
  • The LendingPoolCore contract is responsible for calculating and applying interest rates on loans. It also handles liquidation and collateral management.

Types of Smart Contracts in AAVE

  • AAVE has a number of different smart contracts that serve different purposes, including the LendingPool, Aave, and LendingPoolCore contracts.
  • The LendingPool and LendingPoolCore contracts are responsible for managing the pool of available assets for lending and borrowing, and for calculating and applying interest rates on loans.
  • The Aave contract handles staking and governance in AAVE.

Interacting with AAVE Smart Contracts Using Web3

  • To interact with AAVE smart contracts using Web3, you will need to install the web3 library and use it to get the contract instances for the AAVE contracts you want to interact with.
  • You can then use the methods of the contract instances to call functions on the contracts, such as lending and borrowing assets, staking and unstaking AAVE tokens, and voting on governance proposals.

Understanding Liquidity

Using liquid in the context of the AAVE protocol refers to an asset that is highly liquid, or easily convertible into cash. This is important because it allows for quick and easy exchange of assets within the AAVE protocol. Lending and borrowing on AAVE relies on the concept of liquid assets, as users must have access to assets that can be easily converted to cash in order to participate in the lending and borrowing process.

In addition to understanding liquid assets, it is also important to understand the concept of collateral within the AAVE protocol. Collateral refers to the assets that are used to secure a loan. In the event that a borrower is unable to make their loan payments, the lender has the right to seize the collateral in order to recoup their losses. It is important to carefully consider the value and liquidity of the collateral being used, as it directly affects the risk of the loan.

Another key concept within the AAVE protocol is governance. AAVE utilizes a decentralized governance model, in which users can participate in the decision-making process by staking their AAVE tokens. Staking allows users to earn returns on their AAVE holdings while also having a say in the direction of the protocol.

Finally, it is important to understand the various types of smart contracts that are used within the AAVE protocol. The AAVE protocol utilizes several different types of smart contracts, including the LendingPool contract and the AAVE contract. These contracts handle important functions such as lending, borrowing, and staking, and it is important for developers to have a thorough understanding of how they operate.


In summary, this course has provided a comprehensive overview of the AAVE protocol, including key concepts such as liquid assets, collateral, governance, and smart contracts. By the end of this course, developers should have a strong understanding of how to utilize the AAVE protocol in their own projects, and be able to implement features such as lending, borrowing, and staking using the aave-js library and Web3.