Investing In Aave (AAVE) – Everything You Need to Know
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Aave is a decentralized lending system that helped drive interests in the DeFi sector to new heights. This next-gen protocol was one of the first to enable users to lend, borrow and earn interest on crypto assets. Best of all, there is no need for a middleman when you use Aave because the entire system is run autonomously via smart contracts that live on the Ethereum blockchain.
Since its introduction, Aave's developers have taken great care to make their network accessible to all. The open-access and ease of use of this platform make it ideal for both institutional and retail investors. Consequently, Aave has grown to become one of the most popular DeFi apps in the world.
What Problems Does Aave Solve?
Aave attempts to tackle some of the most pressing issues facing traditional lending services. As with all DeFi, the project's main goal is to convert centralized financial services over to their decentralized equivalents. In a normal lending scenario, the banks would lend out your funds and earn interest. Even though they are lending out your money, you never gain access to these profitable interest earnings.
In the Aave ecosystem, everything changes. Anyone can lend out their crypto in a trustless and permissionless manner to other users. The interest earned from lending your assets is paid directly to your network wallet. In this way, Aave has helped revolutionize the field of peer-to-peer lending and helped to spawn an entire DeFi sector with the same goals.
Benefits of Aave
There are many benefits gained when you utilize this decentralized financial protocol. For one, you gain transparency over the entire network's lending processes and activities. Traditional lending services operate in a closed-door manner that leaves you in the dark about its activities with your funding. With Aave, everything is on the blockchain for the entire community to see.
Keeping in line with the open nature of the DeFi sector, Aave has made its lending protocols open-source. Open source coding is generally more secure because it undergoes intense peer review from the community. Experienced investors prefer open-source projects over private ones because they can ensure all the activities and functions. In this way, there are no hidden risks or fees.
Aave is a non-custodial platform, meaning it never holds your cryptocurrency directly. Non-custodial platforms provide more peace of mind because you retain ownership of your assets. They also have less risk of becoming a target for hackers because there are no wallets filled with users' funds to hack.
Control without Ownership
One of Aave's best features is that the protocol allows a borrower to gain exposure to different cryptocurrencies without owning them outright. Using Aave, you can earn rewards without the need to trade your favorite digital assets. This strategy reduces the risk of loss.
Aave users enjoy a nice selection of interest rate options. The system offers both stable and variable interest rates to meet your investment goals. Best of all, you can switch between these fee structures whenever you please.
Many users are pleased to find out that Aave's decentralized nature makes it ideal for privacy-minded investors. When you utilize this next-gen lending protocol, there is no middle-man involved. Notably, you won't have to waste time filling out lengthy no Know Your Customer (KYC) or Anti Money Laundering (AML) documentation.
There is an excellent selection of lending pools available to Aave users. Currently, the network supports 17 different assets. Specifically, Dai stablecoin (DAI), USD coin (USDC), True USD (TUSD), Tether (USDT), Synthetix USD (sUSD), Binance USD (BUSD), Ethereum (ETH), ETHlend (LEND), Basic Attention Token (BAT), Kyber Network (KNC), Chainlink (LINK), Decentraland (MANA), Maker (MKR), Augur (REP), Synthetix Network (SNX), Wrapped Bitcoin (wBTC) and 0x (ZRX).
How Does Aave Work?
Aave is an Ethereum-based P2P lending system that introduces some new functionalities to the market. To accomplish this task, Aave's developers introduced a unique strategy that relies on collateralized loans and lending pools to provide a seamless experience.
To use Aave, lenders must deposit funds into the network's liquidity pools. Borrowers can access these funds and borrow as they please. To borrow funds from the liquidity pool, users must lock an amount of collateral that is larger than the amount being withdrawn. Notably, the value of this collateral is based on USD.
If the collateral falls below the necessary collateralization threshold, the system automatically places them up for liquidation. Other users can then purchase these funds at a discounted rate. This strategy ensures that the liquidity pools always remain positive.
Aave was also one of the first P2P lending systems to introduce liquidity pool reserve funds. These funds are used to help the pools combat market volatility. Additionally, the reserves serve as insurance to lenders whose funds will be available when they want to remove them from the liquidity pools.
Interestingly, Aave leverages the power of another popular crypto platform, Chainlink (LINK), to determine the real-time value of collateralized assets. Chainlink is a decentralized network of oracles. Oracles are off-chain sensors that can communicate to and from the blockchain. Chainlink's decentralized approach to oracles helps ensure that these sensors remain accurate.
Aave changed the game when they introduced flash loans to the market. These open-source protocols allow users to take out quick loans without any collateral. Additionally, flash loans must be paid back by the time the next Ethereum block has been mined. These lighting fast lending protocols allow users to accomplish a lot of tasks in a short time.
Primarily, flash loans are used for arbitrage trading opportunities. You can take a loan out for one token and trade it on another platform with the asset listed for a higher price. You can also use flash loans to refinance loans on other lending protocols or swap collateral. There is a 0.3% fee for this service. Notably, this protocol became one of the core components of most yield farming systems in use today.
Interest Rate Switching
Users also gain the ability to switch their interest rate structure. You can choose between stable or variable rates at any time using Aave. Variable rates shift continuously based on the demand in the liquidity pool. In comparison, stable rates are based on an interest rate average for an asset over the last 30-days.
AAVE is the original utility token for the network. This ERC-20 token entered the market in November 2017 under a different name. Notably, this token has been carried over from when Aave was ETHLand. Keenly, AAVE is a deflationary asset listed on dozens of exchanges today, most notably, Binance. Developers have stated intentions to make AAVE the primary governance token for the network soon.
When you deposit Aave, you receive aTokens. You will receive an equivalent amount of aTokens compared to your deposit. These tokens are critical to the network because they allow you to earn interest on your lending activities.
History of Aave
Aave entered the market in 2017. The platform was the first DeFi lending protocol and went by a completely different name, ETHlend. The firm's founder, Stani Kulechov, took great care to remove technical barriers so that anyone could utilize this advanced network. Notably, the Aave secured over $16 million during its crowdsale.
How to Buy Aave (AAVE)
Currently, Aave (AAVE) is available for purchase on the following exchanges:
Uphold – This is one of the top exchanges for United States & UK residents that offers a wide range of cryptocurrencies. Germany & Netherlands are prohibited.
Binance – Best for Australia, Singapore, UK, & USA residents. Canadian residents are prohibited.
Discount Code: EE59L0QP for 10% cashback off all trading fees for non-USA residents. USA residents: Trade $100 & Earn $10 in 30 days after account registration.
Kraken – Founded in 2011, Kraken is one of the most trusted names in the industry with over 9,000,000 users, and over $207 billion in quarterly trading volume.
The exchange offers trading access to over 190 countries including Australia, Canada, Europe, and is our a recommend exchange for USA residents. (Excluding New York & Washington state).
KuCoin – This exchange currently offers cryptocurrency trading of over 300 other popular tokens. It is often the first to offer buying opportunities for new tokens. This exchange currently accepts International & United States residents.
WazirX – This exchange is part of the Binance Group, which ensures a high standard of quality. It is the best exchange for residents of India.
Uphold Disclaimer: Assets available on Uphold are subject to region. All investments and trading are risky and may result in the loss of capital. Cryptoassets are largely unregulated and are therefore not subject to protection.
Aave – A Pioneering Force in the Market
Aave has proven to be a driving force for innovation in the crypto sector. This network was way ahead of the DeFi curve. As such, it's now one of the biggest players in the sector. Users enjoy a simplistic and secure DeFi experience when they utilize Aave. For these reasons, you can expect to continue to hear a lot more from this ingenuitive network in the coming weeks.
David Hamilton is a full-time journalist and a long-time bitcoinist. He specializes in writing articles on the blockchain. His articles have been published in multiple bitcoin publications including Bitcoinlightning.com
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