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Borrow and Lend Digital Assets on the Aave Platform – An Open-Source DeFi Protocol
The crypto space has grown tremendously, but more progress has yet to be made regarding lending and borrowing digital assets. However, many companies are taking a step in this direction, and Aave is a perfect example.
Aave is an open-source DeFi protocol that allows users to borrow and lend digital assets. The platform has traditional loan features and several unique features that make it stand out.
This article will review the platform, understand its features, and how it works.
What is Aave?
Aave gets its name from the Finnish language and loosely translates to ‘ghost.’ The platform aims to provide a transparent and open infrastructure for decentralized finance. The platform was founded in 2018 as the parent company of ETHLend.
Although ETHLend is a Swiss-based company, Aave has its headquarters in London. The company’s top executives moved from ETHLend after it became a subsidiary of Aave. The DeFi platform has a multicultural team of innovators, which is made of 18 creatives. Aave’s CEO is Stani Kulechove, and Jordan Lazaro is the COO.
Aave allows users to participate as either a depositor or a borrower. Depositors get to earn a passive income by providing liquidity to the market. On the other hand, Borrowers can get a loan either perpetually or as one-block liquidity.
Aave’s protocol is a set of smart contracts on the Ethereum blockchain. These contracts eliminate the need for intermediaries and offer more security. Besides, several auditors develop the security protocol for Aave. Users interact with smart contracts and blockchain data through the platform.
Why Should You Choose Aave?
There are several platforms at the moment that allow you to borrow and lend cryptocurrencies. So, why should you pick Aave out of all these? Here are some products and services you will benefit from trading on the Aave platform.
Like many of these platforms, Aave has come up with its tokens. The aTokens are Aave interest-bearing tokens. These tokens are minted upon deposit and burned upon redemption. Users must deposit their digital assets in the Aave protocol and act as the underlying assets. The aTokens are then pegged to the underlying assets 1:1 for their value.
Borrowers get to loan the underlying assets. The aTokens pegged to these assets then accrue interest in real-time directly to the wallet. The best part is that you get to watch your balance grow, and you can redirect the interest to an Ethereum public address whenever you want.
Because the aTokens are pegged to underlying assets, you earn interest in stablecoins such as aDai and aUSDT.
Although several platforms offer loans for digital assets, this product from Aave is quite innovative. These flash loans are the first decentralized finance option that offers uncollateralized loans. As long as the liquidity is returned to the pool within one transaction block, collateral is unnecessary.
The funds are safe in the reserve pool thanks to the zero collateral. If the liquidity cannot return to the pool, the block reverses the entire transaction to undo the actions until then.
Flash loans are useful for everyone because they don’t require any capital to get started. Therefore, the entry barrier is quite low, making it affordable.
Aave’s referral program is quite lucrative. To participate in the program, you must complete the referral form and get a referral code after 1-2 business days. After that, users must input the code for either deposit or redeem calls. In addition, the program offers a 20% fee share.
Whenever borrowers take out an Aave loan, they are charged a 0.25% origination fee. Aave developers use 80% of this fee to buy the token LEND on the market and reduce the monetary supply by burning the Lend. Referees then receive the remaining 20%
Users who reside in Europe have access to Aave Pay. Through this service, they can use their crypto balance to pay for their items using fiat currencies. In addition, the service allows users to take out ETHLend and send fiat to any bank account without cashing out their crypto holdings.
How Does Aave Work?
As mentioned above, Aave is quite an easy platform to use. However, you must head to the Aave website first to get started. The site supports three web 3.0 wallets that users must connect to first before using Aave. These three wallets are Metamask, Fortmatic, and Coinbase Wallet.
Users can then start earning interest immediately by supplying funds to the protocol. But unfortunately, doing so also increases the chances of borrowing more digital assets.
The Aave interface is quite straightforward. For example, if you wish to deposit some assets, you only need to search for them and select the amount you want. Aave will then ask you to approve access to the asset, after which you will need to sign the transaction.
Your assets immediately enter the lending pool, and you can monitor your accrued interest. In exchange for your digital assets, the platform will aTokens. These tokens represent your claim to the lending pool and are equivalent to the underlying assets. The tokens earn either stable or variable rates, and users can switch between the two however much they like.
The Aave platform is an innovative product in the crypto space. You can borrow and lend digital assets through the platform and watch your balance grow in real-time. Besides all the benefits we have already mentioned, you can also participate in the bug bounty campaign that lets you earn rewards whenever you find bugs and vulnerabilities on the platform.