About this Summary
Bitbuy Technologies Inc. (“Bitbuy” or “we”) believes that our users should understand the crypto assets that they are able to trade using our crypto trading platform (the “Platform”). One of the crypto assets we offer on the Platform is AAVE. We created this summary to help you understand the basics of 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 isn’t meant to tell you everything you’d want to know before investing in AAVE. You should also do your own research on AAVE to make sure you are comfortable investing in it.
Description of AAVE
AAVE is the native token of the Aave lending protocol (the “Aave Protocol”). The Aave Protocol is an open-source lending protocol running on the Ethereum blockchain that enables users to lend and borrow crypto assets. Aave is a Switzerland-based for-profit company originally founded in 2017 by Stani Kulechov under the name ETHLend.
The Aave Protocol facilitates lending pools (also known as liquidity pools) which allow users to lend or borrow different crypto assets. When users lend, they earn interest; when they borrow, they pay interest. Similar to other decentralized finance systems hosted on the Ethereum blockchain, borrowers on the Aave Protocol must post collateral before they can borrow.
Users lend by depositing crypto assets into the liquidity pools. The funds underlying these pools are allocated via smart contract to borrowers. Users who deposit their crypto assets receive new aTokens. aTokens allow users to earn interest. The amount of interest earned on the aTokens depends on how much liquidity is available in a given lending pool. Bitbuy does not facilitate trading in aTokens. Rather, you can buy and sell AAVE – the native token on the Aave Protocol – via the Platform.
AAVE has are several features that make it attractive. When used to post collateral, AAVE users receive increased borrowing limits and reduced fees. In addition, AAVE borrowers can take out a loan denominated in the token without being charged a fee. Holders of AAVE are also able to participate in the governance and development of the Aave Protocol, as AAVE is used to vote and decide on the outcome of proposals to improve the Aave Protocol.
The Aave Protocol has a safety module denominated in AAVE which serves as a backstop for insolvency risk. The safety module works by incentivizing investors to purchase and stake AAVE within an insurance pool, allowing them to earn further AAVE. If a market on the Aave Protocol reaches a state where its liabilities are greater than its assets, then the AAVE safety module is intended to cover the shortfall.
Like other crypto assets, there are some general risks to investing in AAVE. We identify many of these general risks in the risk statement we publish on our website. We also point out some risks that are specific to AAVE below. While we tried to describe the key risks associated with AAVE here and in our risk statement, these aren’t all of the risks associated with trading in AAVE. You should also do your own research on AAVE to make sure you are comfortable investing in it.
AAVE’s Dependence on the Aave Protocol and Ethereum Blockchain
The price of AAVE is heavily dependent on the strength of the Aave Protocol. As a result, the risks associated with the Aave Protocol also comprise risks to AAVE itself. The specific risks facing the Aave Protocol (as a decentralized lending platform), which include market risk and oracle risk, are highly technical in nature. We encourage you to consult Aave’s website, where they publish a risk framework which sets out and explains those risks, and also explains how the Aave Protocol functions to address those risks. The Aave Protocol relies on the Chainlink Network to help protect against oracle risk.
Also, as Chainlink runs on the Ethereum blockchain, if Ethereum were to crash or experience serious issues, LINK’s price could also be negatively impacted.
The Aave Protocol facilitates “flash loans”, which do not require upfront collateral and are instantly issued. Flash loans have previously been used to execute attacks on lending systems built on the Ethereum network. These attacks have resulted in large quantities of deposits being stolen. The Aave Protocol relies on the Chainlink Network to help protect against the risk of flash loans.
How Bitbuy Decides to List Crypto Assets
Bitbuy reviews crypto assets before making them available for trading on the Platform. In making our decision to list a new crypto asset, we consider publicly-available information about the crypto asset, including (among other things) its creation, design, governance, usage, supply, demand, maturity, utility, liquidity, material technical risks and legal and regulatory risks.
To date, we have only made crypto assets available for trading on the Platform which have significant supply, demand and liquidity. In our experience, crypto assets with these qualities tend to also satisfy the other criteria we evaluate as part of our review. That being said, our review process is fulsome and flexible, and we don’t prioritize any one factor over another. You should review the risk statement published on our website for more information about our procedures for determining whether to make a crypto asset available for trading on the Platform.
Bitbuy is offering crypto contracts to purchase and sell AAVE in reliance on a prospectus exemption contained in the exemptive relief decision Re Bitbuy Technologies Inc. dated November 30th, 2021. The statutory rights of action for damages and the right of rescission in section 130.1 of the Securities Act (Ontario) and similar legislation in the other provinces and territories of Canada would not apply in respect of a misrepresentation in this Statement.
No Canadian securities regulatory authority has expressed an opinion about AAVE, including an opinion that AAVE is not itself a security and/or derivative.