The Aave protocol is compatible with a wide range of Ethereum-based crypto tokens. Borrowers send collateral as crypto assets to a pool within Aave and receive a loan in return. They must provide more collateral than the amount of the loan to protect against volatility, and they also pay interest. On the other hand, lenders send their assets to pools in Aave and receive aTokens in return, representing the assets they lent. These tokens earn interest as they represent the loan but can also be traded. When lenders redeem their aTokens by withdrawing the original assets they lent, they receive the assets plus any interest that has been added in the form of the asset they lent. For example, if someone lends 15 Ether (ETH), they receive 15 aETH in return. When they redeem the aETH by withdrawing the initial lent ETH, it also comes back with any interest earned in the form of additional ETH. However, selling aTokens to someone else allows the buyer to profit from the previous owner's loan and any interest held in that capital.
The Aave platform also offers flash loans, short-term loans that do not require collateral but require a fee and must be repaid within a specific time frame. The fee is paid to the pool lenders. AAVE is an ERC-20 token, meaning it is based on the Ethereum blockchain, but it is not a coin.