Aave is a decentralized finance protocol. It is a series of liquidity pools controlled by smart contracts (code) that you can interact with using a self-custody wallet like Minke.
Users can deposit assets into the pool to earn interest and can also lend assets from the pool in the form of loans.
These liquidity pools generate income from fees and interest paid by users who have taken loans. That income is then paid out to the users who have deposited assets in the form of interest.
The higher the utilisation of a lending pool, the higher yield for depositors. As such, this means that when demand for borrowing drops (e.g. in a bear market), interest rates can be lower.
Example 1 - Saving
You deposit USDC to earn interest. You receive a share of the interest generated from fees and lending.
Example 2 - Saving and Borrowing
Loans are over-collateralized which means you have to deposit more than you lend.
You deposit ETH and lend USDC worth 70% of the value of that ETH. You pay interest on the USDC you have borrowed and you earn interest on the ETH you have deposited.