Have you ever been in the position where you wanted to make a quick investment with crypto coins, but didn’t have the right currency? In that case, you could have borrowed crypto coins through Aave’s platform. This platform brings borrowers and lenders together. For example, someone who lends crypto coins can use all the benefits, while the person who lends the coins can earn interest on the crypto coins.
In this article we will discuss the Aave protocol, and tell you how you can earn money yourself by lending crypto coins. Of course we also tell you how you can borrow coins yourself via Aave.
- 1 What is the Aave protocol?
- 2 LEND
- 3 The team behind Aave
- 4 The Partners
- 5 Aave .’s ICO
- 6 Tokenization with Aave tokens
- 7 How is the interest calculated?
- 8 How can I store Aave tokens?
- 9 How can you deposit money on Aave?
- 10 Stablecoins Aave List
- 11 Why should you borrow cryptocurrency?
- 12 How do I borrow cryptocurrencies with Aave?
- 13 What is the difference between a stable rate and a variable rate?
- 14 Aave Price and forecast
- 15 How do I buy AAVE?
What is the Aave protocol?
Aave, founded in 2017 and based in London, is the company that invented the protocol of the same name. It develops a decentralized protocol for the financial market in which users can participate as a lender or borrower. In that case, we also call this Decentralized Finance, which means DeFi for short .
Borrowers provide liquidity to the market to generate passive income, while borrowers can borrow with cryptocurrency as collateral. At present, the Aave protocol supports more than 15 different types of cryptocurrency. The selection is very wide, making the platform very versatile. When a deposit is made in the Aave protocol, Aave tokens (aTokens) are counterfeited.
These special tokens track the value of the underlying asset and are burned when the loan is repaid. While the underlying asset is lent to the borrowers, the aTokens earn interest in real time. In addition, they can be freely stored, transferred and traded. These tokens are therefore very popular among crypto traders. Aave also offers collateral based solutions. The protocol thus makes it possible to borrow immediately without the need for collateral. Watch the video below explaining how Aave works.
In the past, Aave was known as ETHLend, which quickly left the company to mark its transition from a decentralized P2P lending strategy to one based on liquidity pools.
Previously, the protocol’s native token was LEND, which was recently replaced by AAVE after the network agreed to this through a vote. The ratio for this was 100 LEND to 1 AAVE.
“Aave” is a Finnish word that translates into French as “ghost”. For Aave, this represents its goal of creating a transparent and open infrastructure for highly decentralized financing.
The team behind Aave
According to the official list of Aave team members (which can be found on the Aave website), the Aave team consists of 18 people. Let’s take a look at the background and missions of the key members:
- Stani Kulechov . He is the founder and CEO of Aave, and is a seasoned entrepreneur with extensive experience developing solutions for the blockchain industry. He holds a master’s degree in law from the University of Helsinki. Stani Kulechov advises numerous blockchain projects and is a frequent speaker at conferences on FinTech and Ethereum smart contracts .
- Jordan Lazaro. He is Chief Operating Officer of Aave, holds a degree in risk management and international politics from Paris X Nanterre.
- Ville Valkonen . Ville is Director of Compliance at Aave, holding a key position in the development of the company’s products. In particular, he is in charge of the technical support of the startup.
For a company that bases its business on Decentralized Finance, Aave has entered into numerous partnerships with the following companies:
- Chainlink . This is a decentralized network of oracles and provides Aave with reliable asset price data. Chainlink itself is a project that allows blockchain to exchange data with off-chain data.
- MYKEY . This is a wallet that integrates Aave’s DeFi products into its ecosystem.
- RealT . Aave brings mortgages on Ethereum to this real estate tokenization platform.
- Gitcoin . Aave organizes online hackathons on the theme of Web 3.0 .
- Tether .Aave is improving its decentralized flash loan solutions with the stablecoin USDT issuer.
Aave .’s ICO
The Aave project raised a total of $24 million over 2 funding rounds while the LEND token was still in use. That is a fairly large amount, especially in the time in which this ICO (Initial Coin Offering) took place!
In November 2017, Aave went through a public ICO, which raised $16.5 million. A lot less than the first financing round. Note that at the time of this fundraiser, the LEND token cost only $0.017270 (representing an AAVE token of $1,7270).
Then, in July 2020, Aave received support from several investment funds, raising an additional $7.5 million. The project was notably supported by DTC Capital, Parafi Capital Three Arrow Capital and Framework Ventures.
Tokenization with Aave tokens
The Aave protocol implements a tokenization strategy for liquidity providers. During a deposit, the user receives a corresponding amount of tokens, which are known as Aave Tokens (or aTokens).
These tokens correspond to a 1:1 ratio to the underlying assets that have been deposited and follow the Ethereum ERC-20 standard. The balance of each borrower’s aTokens increases over time, reflecting the interest generated by the loans.
Once an Aave-linked wallet contains aTokens, the value (interest) generated by the aTokens can be forwarded to any address so that the balance and the interest generated can be split.
Despite the advantages of this tokenization model, it has a significant drawback. It is impossible to transfer the entire balance in a single transaction. You cannot enter the exact amount on your account for the transfer. This means that there is always a very small balance (also called a substance balance) in the wallet from which the transfer is made.
How is the interest calculated?
People who deposit their money on Aave receive a continuous income that changes in line with market conditions, which is split into two parts.
The payment of interest on loans
All those who provide liquidity to an asset share in the interest paid by the borrowers, which corresponds to the average borrowing rate multiplied by the occupancy rate.
The higher the utilization rate of a reserve, the higher the return for depositors. You can see this interest rate model in action through a spreadsheet that is updated in real time.
Interest payment on flash loans
Depositors receive 0.063% of the volume of each flash loan executed on Aave.
How can I store Aave tokens?
Since the AAVE is an ERC-20 token, there are plenty of ways to store it. Without a doubt, the safest way to store your AAVE tokens is to use a hardware wallet , also known as a cold wallet . The best-known wallets of this type are those from Ledger, a French company that was co-founded by Eric Larchevêque.
It is of course also possible to store aTokens in a hot wallet. However, that is a lot less secure, since this wallet is linked to the internet. This makes a possible hack much faster and easier compared to a cold wallet. A cold wallet is a wallet that can be disconnected from a device. Think, for example, of a kind of USB stick.
How can you deposit money on Aave?
By depositing cryptocurrency on Aave, you can generate passive income yourself. After all, you are rewarded by the protocol for providing liquidity to assets that other people will borrow. Depositing the cryptocurrencies you own on Aave makes sense if you own stablecoins . Take, for example, Tether’s USDT, for which Aave offers an annual interest rate of 5.22% at the time of writing.
Using this function is very simple and easy to set up. Simply select the cryptocurrency you wish to deposit from the list of cryptocurrencies supported by the platform and then enter the amount of your deposit. Once your deposit is registered, you will start earning interest.
Stablecoins Aave List
Each cryptocurrency has its own supply and demand market with its own annual interest rate that changes over time. If the difference between the available liquidity and the borrowed funds becomes smaller, the annual interest on the deposit increases (this is also a function of other factors). It is wise to always take a look at the current list, so that you know for sure what interest you receive per cryptocurrency.
Why should you borrow cryptocurrency?
We have now mainly talked about lending cryptocurrency. Of course it is also possible to borrow cryptocurrency via Aave’s platform. But why would you actually do that? At first glance, this may seem very strange, but borrowing cryptocurrencies is very interesting. It offers many options and possibilities, which we would like to tell you more about.
Let’s say you have an open position on an asset (let’s take Ethereum in this example) and you then have a big investment opportunity. You will not be able to get your Ethereum back unless you close your position. By borrowing crypto coins from Aave, you can therefore get cash without having to sell assets. This allows you to take advantage of new investment opportunities, or even cope with unforeseen expenses.
How do I borrow cryptocurrencies with Aave?
To borrow money from Aave, you will first have to deposit money as collateral. This way the platform knows that you are able to pay back the money in the end. You can then see the list of all available crypto coins in the platform. These are the coins you could borrow through Aave. Select the coin you need, then tap ‘Borrow’ in the bottom right corner.
After this you will have to enter the amount of crypto coins according to your collateral, after which you choose a stable or variable interest rate. We explain further in this article what the difference is between these two interest rates. After you have made a choice, confirm the transaction. After this, Aave offers you the possibility to change the selected type of rate at any time. So it offers a lot of flexibility!
What is the difference between a stable rate and a variable rate?
We talked about the stable and variable interest rate. We understand that it is not immediately clear what the difference between these two terms is, and we are therefore happy to explain more about it.
The stable interest rate
Stable interest rates act like a fixed interest rate in the short term, but can be adjusted over the long term based on changing market conditions. Choosing a stable interest rate therefore makes it possible to plan the amount of interest to be paid in advance.
A new equilibrium of stable rates is unlikely, but occurs when the average borrowing rate is below 25% and the utilization rate is above 95%.
The variable interest rate
The variable rate is the rate that is based on supply and demand in Aave. The floating rate changes over time and is more beneficial depending on the situation. So it can turn out worse, but it can also turn out a lot better. It is entirely dependent on the supply and demand on Aave’s platform.
Aave Price and forecast
How do I buy AAVE?
With its large capitalization, Aave’s token is available on many platforms such as Binance , Bittmex, ByBit, Uniswap , HitBTC, and Gate.io . So you don’t have to look for a crypto exchange that sells this specific token. That is easy, given that some, especially new tokens are the case.
When you buy it through a crypto exchange, you can save yourself where you store the coins. This can be done in the exchange’s hot wallet, a hot wallet on your local drive or on a cold wallet, which we just talked about.
The price of Ave can be followed on Coinmarketcap. Here you can also view other data, such as the market capitalization and the amount of tokens in circulation. The token has been available here for quite some time. Of course, in most of them it is also possible to view the price of Aave in the crypto exchange where you want to buy the aToken.
Thanh Lanh Tran(1989) is Chief Editor from BitcoinUSD.com