Ten years ago, no one would have thought of opening a credit platform to lend money to anonymous customers. But with the development of the crypto industry, a need for decentralized lending platforms operating in peer-to-peer payment systems arose.
To not become dependent on external regulators and not violate the confidentiality of financial transactions, it is necessary to conclude loan agreements using smart contracts, ensuring creditworthiness with an internal collateral token.
In this review, we will tell you about one of the best decentralized finance platforms Aave known in the past as EthLend. Let’s get started!
What Is AAVE Cryptocurrency?
AAVE cryptocurrency is an open-source, non-custodial protocol that allows creating money markets. Users can earn interest with deposits and borrow assets. Against the backdrop of interest in cryptocurrencies, analysts predicted that the service would be popular within the framework of margin trading.
Ty Young, a researcher at crypto data aggregator Messari, noted that protocols like Aave generate cash flow and have intrinsic value. He also stated:
As familiar frameworks gain traction and valuation standards coalesce, DeFi assets will gain greater appeal from financial institutions and investors.
As was mentioned before, Aave is a lending platform initially known as ETHLend, but with a radically redesigned strategy. While ETHLend provided an opportunity for direct credit relations between lenders and borrowers, a decentralized strategy based on a pool was launched with the Aave protocol release.
How does the Aave credit pool work? Well, users create liquidity by investing cryptocurrencies in a pool. Other users can use these funds by leaving others as collateral. Loans are not selected individually. Everybody is under equal conditions, which are adjusted depending on the pool’s current state. Smart contracts control all operations.
The interest rate is determined algorithmically for both borrowers and lenders. It depends on the ratio and value of the funds currently available in the pool.
AAVE is a token created to control the protocol. Its owners can vote for certain changes in the project. All voices are encrypted and taken into account.
Key Features of the Aave Platform
Flash loans are one of the main features of Aave. DeFi lending usually requires collateral, most lenders (such as MakerDAO) allow users to borrow up to 75% of the collateral available to prevent market volatility.
In turn, flash loans work through a smart contract, with which you can borrow funds without collateral, with the condition that the loan will be repaid within one transaction (one block). Traders use the method to make money on arbitrage since it makes it possible to borrow funds for free without limit until the loan is repaid.
It is quite difficult for a beginner, and the developers recommend using this method of lending only to those who are well versed in Ethereum, programming, and smart contracts.
Flexible Interest Rates
The interest rate strategy on the Aave platform is developed to maximize operational optimization and reduce risks. Interest rates on loans depend on the utilization rate of a particular cryptocurrency. It is based on the indicator of the cryptocurrency availability in the pool:
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- If there are enough funds, then low rates are set, which stimulate lending.
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- If funds are scarce, high rates are set for liquidity providers to encourage them to invest.
A nice feature of Aave is the ability to switch between fixed and variable interest rates, choosing the most profitable option at a particular moment. With this flexible structure, Aave has been in high demand since its deployment. At the same time, fixed interest rates are not exactly fixed but rather solely more stable and less prone to market fluctuations.
How to Make Money on Deposits?
You need to connect to the pool using any decentralized wallet, for example, the browser Metamask. The wallet has to contain funds. Then click the ‘Deposit’ button next to the asset you want to deposit (Ethereum-based coins and tokens are supported). When the transaction is completed, you will start earning interest. In this case, the deposited tokens are converted into an equal number of aTokens.
ATokens holders receive continuous income based on the following indicators:
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- 70% of commissions from flash loans.
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- The interest rate on loans. Average borrowing rate multiplied by the currency utilization rate. A specific current rate for the required token is always indicated on the main page or in your account.
You can also go to the page of any coin to view the history of changes in the interest rate.
There is no minimum or maximum limit, but if your deposit is too small, there is a risk that the transaction costs will exceed the profit. A one-time deposit is allowed for one asset at a stable or at a variable rate, but not both options at once. You can withdraw funds at any time without any penalties.
What Is AAVE Token Used For?
The platform’s native token AAVE is an ERC-20 token with a total emission of about 1.3 billion, of which one billion was sold at the ICO stage. It was originally used as a utility token of the ETHLend platform, which helped to reduce fees, improve interest rates and LTV.
However, when ETHLend was replaced by the decentralized platform Aave, the AAVE token received additional uses, including platform management. Token holders have the right to vote on the proposals of the development team regarding the key parameters of the system.
Where to Store AAVE Token?
Any wallet that supports ERC-20 tokens will do well. The list of such wallets is quite extensive, for example:
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- Web wallet — MyEtherWallet
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- Browser extension — MetaMask
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- Desktop and mobile — Exodus, Atomic Wallet
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- Hardware — Trezor, Ledger, KeepkKey
Choose options with a proven reputation and a high level of security.
How to Buy AAVE Crypto at Switchere?
If you’re interested in buying AAVE, you should definitely think about doing this at Switchere. On our platform, you have an opportunity to buy AAVE in the fastest and most convenient way. Moreover, we offer some surprising bonuses! Users of our platform enjoy a 0% service fee for the first order.
Here is an easy step-by-step guide on buying AAVE at Switchere!
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- Visit our website and log in to your account.
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- Choose the currency pair for exchanging, enter the amount, and your AAVE wallet address.
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- Check the transaction details, agree with our Storage of the Cardholder’s Credentials, and click on the ‘Make Payment’ button.
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- Enter your card details and click on the ‘Pay Now’ button. Please take into account that you have a limited amount of time to send your funds. Elsewise, the transaction will be canceled automatically.
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- Once you send the funds and your transaction receives the required number of blockchain confirmations, the amount of purchased AAVE will be sent to your provided wallet address accordingly. Click on the ‘Show Order Status’ button to check the status of your transaction.
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- Congratulations! The transaction is completed, and now you can check your AAVE wallet.
Usually, Switchere transactions take 5-30 minutes. If you have any troubles with the exchange process, let us know at [email protected].
Conclusion
The Aave protocol is one of the most demanded in the field of DeFi lending today. This is due to a large selection of cryptocurrencies, support for many wallets for connection, a flexible system of interest rates. The mechanism of smart contracts allows you to avoid many risks and inconveniences that are inevitable when interacting with traditional banks.
What do you guys think about AAVE? Feel free to share your thoughts in the comments below!
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