Supply

Supplying tokens to the Aave Protocol allows users to earn interest on thier digital assets and utilise supplied tokens as collateral. When tokens are supplied, they are transferred to the Aave liquidity pool, a system of smart contracts that facilitates overcollateralised borrowing of tokens. In Aave, supplied tokens automatically accrue interest based on the current market supply rate. As the balance of supplied tokens increases, interest is accrued dynamically, reflecting the current rate allocated to suppliers.

Interest rates for supplied tokens are determined by the borrow utilisation rate, which measures the proportion of assets currently borrowed against the total supplied in the pool, and by governance parameters that can be adjusted through community decisions. These parameters, including collateralisation requirements and interest rates for suppliers and borrowers, are influenced by onchain inputs such as token balances, oracle prices, and the borrow utilisation ratio. As liquidity is supplied, borrowed, repaid, or withdrawn from the pool, the interest rates are updated accordingly.