- The DeFi network is based on tried and trusted Ethereum ecosystem.
- The concept of Flash loans makes borrowing easier for any user, even without having capital.
- The marketplace does not require a middleman for transaction processing.
- Aave is user-friendly and can be used by investors who are not experts in Blockchain.
- The utility of LEND coin is going to be augmented.
- The Aave system utilizes a liquidity pool system with an algorithmic approach for crypt loan interest calculation.
- It supports 17 crypto assets leading to a diversified lending pool.
- It is based on an open-source lending protocol.
- No KYC verification is needed to use the service.
- The liquidity pool reserve fund safeguards from crypto sector volatility
- Flash loans may not be useful for beginners.
- Governance of LEND token is yet to be implemented.
- Flash loans are not deemed safe by industry experts.
- Native token’s wallet support is limited.
In the last few years, the demand for crypto tokens has shot up. While the governments in many countries have been slow to embrace crypto coins, investors and crypto proponents have not been idle. The growth of the crypto sector has also fueled the growth of the Decentralized finance or DeFi sector. Several DeFi ecosystems are flourishing and their native crypto tokens are also gaining prominence. One such example is Aave. It is more than another typical cryptocurrency lending platform.
The basics and history of Aave Coin
Aave is a flexible and powerful decentralized cryptocurrency lending platform based on the Ethereum ecosystem. It is what kick-started the DeFi lending system back in 2017. The system was developed and inaugurated by Stani Kulechov. In the early days, the project was named ETHlend. It was designed as an online marketplace where lenders and borrowers could negotiate without having to rely on a third party.
Its success made the developers willing to take the plunge into the nascent DeFi space. This led to the creation of Aave mainnet in 2020. One notable thing about the Aave project is that the core team has successfully accomplished the roadmaps mentioned.
The working mechanism of Aave
Aave enables the users to borrow and lend cryptocurrencies, using a trustless and decentralized method. The Thing is there is no need to go through a Know Your Customer verification to use it. In other words, in Aave ecosystem, lenders put their money in a pool and from there users may borrow funds. Every lending pool is monitored by the network round the clock for changes.
Aave offers 17 distinct types of assets for borrowing and lending. These include USD coin (USDC), the Dai stablecoin (DAI), Synthetix USD (sUSD), Tether (USDT), Binance USD (BUSD), Chainlink (LINK), Ethereum (ETH), Basic Attention Token (BAT). While the asset list looks impressive, not all of these can be utilized as collateral to obtain crypto loans. Like other DeFi ecosystems, Aave offers over collateralized loans. This ensures a user has to deposit an amount which is larger than the amount being borrowed. Aave deploys Chainlink to collect price data on deposited assets on the platform.
Aave offers variable and stable interest rates. Users can switch between 2 interest rates after paying an ETH gas fee. When funds are deposited in its network as collateral when borrowing or as a lender, the user gets the equivalent amount through aTokens. It is there for interest earning.
The borrowing and lending process
For borrowing, depositing collateral will be necessary and the amount borrowed has to be less than that of collateral value. The funds are taken from its liquidity pool. Aave has lending pools using which lenders can obtain interest on their various digital assets. The reserves kept by Aave is assuring for the lenders and act as a safety cushion. Some assets on Aave offer stable rates but the others have variable interests.
What is Aave flash loan?
Flash loans can be called the USP of Aave. This enables the users to borrow a big amount of cryptocurrency without keeping any collateral. The technical details of this are yet to be clearly understood. The cryptocurrency borrowed has to be reimbursed before mining of the subsequent Ethereum block. If that does not happen, transactions occurring within that period are cancelled. For each flash loan, paying a 0.3% fee is required.
While flash loans may not be useful for beginners and mainstream users, cryptocurrency traders find these handy. They use it for arbitrage and refinance loans on some other lending protocols or for collateral swapping. Aave has made the flash loan codes public.
Aave LEND Cryptocurrency
Back in 2017, when the Aave network was known as ETHlend, a multi-round ICO was launched with LEND-its ERC-20 token. It managed to raise more than over 16 million USD and 23% of the coins were kept by the developers and founders. LEND was and is used for paying charges on the network and it is a deflationary asset. Aave team has plans to use it as a governance token.
It is quite amazing that LEND token price has never crossed the threshold of 1$USD. The volatility of the crypto sector has not affected its price surge much. However, after the launch of the latest Aave protocol, Lend token price has started soaring upwards. This is encouraging given the fact the token is used for paying protocol charges. It remains to be seen what effect governance introduction has on the price. Lend is listed on a number of crypto exchanges including Binance. As LEND is a type of ERC-20 token, you can store it on any cryptocurrency wallet supporting Ethereum.
Is it risk free?
Aave is said to be safer than most other competing DeFi ecosystems. The users can borrow any cryptocurrency but they do not have to own the assets. The dual interest rate option and provision to switch between them is also useful. The working mechanism combines collateralized loans and diverse lending pools. The crypto enthusiasts can obtain a seamless transaction experience. The system automatically tracks the value of the locked collateral. The first time investors feel reassured owing to the presence of its reserve fund.
Summing it up
Aave is one of the pioneers in the fast-growing Decentralized Finance sector. The open-source project powered by Ethereum ecosystem enables mediator less transactions. It has got many useful features and some of those are rare to find on other platforms. Aave is an ideal platform for veterans in the crypto sector. The borrowing and lending systems are well planned and safety mechanisms are also in place. However, the hardware wallet support for its native token is somewhat limited now. The team is yet to deploy the governance system for LEND coin. The flash loans may seem alluring but it may not be suited for all users. Overall, it is a DeFi system worth trying but you should practice moderation.