Ethereum Dapps Worth Looking Into: Aave

Aave

In this article, we will be discussing one of the most unique Ethereum Dapps on the Defi internet. This is an open-source DeFi Lending application that allows users to earn interest on deposits, as well as borrow a wide variety of cryptocurrencies. The Dapp I am referring to is Aave.

Traditional cryptocurrency lending apps are controlled by a single entity. Aave – on the other hand – is unique in comparison to other crypto lending platforms, as it is completely Decentralized. This means that the borrowing and lending services through Aave are conducted on a peer-to-peer basis, using smart contracts on the Ethereum blockchain.

Aave originally started as ETHLend – back in 2017 – and was one of the first lending platforms to be built on the Ethereum blockchain. Currently Aave is the fourth most popular DeFi app in the world, as well as the world’s third most popular lending and borrowing Dapp. Aave offers a wide variety of different loans and supports 17 cryptocurrency assets.

Lending your Cryptocurrency With Aave

To use Aave for lending your crypto, you will need a compatible web 3.0 wallet – such as MetaMask – as well as some DAI tokens. DAI is a decentralized and unbiased stablecoin cryptocurrency on the Ethereum blockchain, which aims to keep its value as close as possible to that of the United States Dollar. One of the most interesting features of Aave, is that lenders have the option to purchase DAI tokens directly from the Aave site with fiat currency. Once you have deposited your DAI tokens in Aave, you can simply sit back and watch your accrued interest grow over time. That is simply all it takes to supply cryptocurrency to the Aave lending pool. You can withdrawal your funds from Aave whenever you desire to do so. One of the benefits to loaning on Aave is that your interest can also serve as collateral for any cryptocurrency which you may want to borrow in the future.

Borrowing Cryptocurrency With Aave

When you take out a loan with Aave, you will have two options available. You can borrow cryptocurrency at a variable rate – like many other platforms – or you can borrow crypto at a stable rate, which is a unique feature of Aave. A fixed rate loan through Aave is not the same as a traditional fixed rate loan from a bank – or similar financial institution – in that the loan can be rebalanced in the event of severe changes in the market conditions. Because of this, fixed rates through Aave are intended to be used as a short to medium-term borrowing strategy. It is also important to consider the fact that the fixed rate will always be higher than the variable rate. This is to account for the risk involved with applying a fixed rate to the volatile nature of cryptocurrency.

Flash Loans

One of the most popular features of Aave is the users’ ability to take out flash loans. For those of you who are unfamiliar; a flash loan is an instantaneous and uncollateralized loan used to purchase another asset within the DeFi space. The loan is immediately taken out to purchase the asset and is then paid back within the same transaction. If the asset is not paid back in full – plus a small transaction fee – the loan is never issued in the first place. This is a controversial trading tactic, which can be used to exploit slippage and exchange metrics, for the borrower and the lender to make a profit. Another interesting factor of the flash loan is that there is no minimum or maximum amount of cryptocurrency needed to conduct a flash transaction. This is useful if you find a coin which is currently trading for $1.00 on one DEX, but you find it on another DEX that is trading it at $1.02. you could borrow enough to buy the $1.00 coin, and then sell it to the DEX, which is valuing it at 1.02, and immediately repay the loan, all in one shot. You would make a profit, by arbitraging the token mispricing.

LEND Token

LEND is an ERC-20 token, which was originally intended to be a utility token; however, after ETHLend rebranded to Aave, it became a governance token, allowing its holding users to vote on protocol changes to Aave. These protocol changes typically include interest rate models, liquidation configurations, and the addition or removal of assets. currently 80% of the fees generated on Aave are swapped to the LEND token and then burned. The more fees generated on Aave, the more LEND tokens are burned; therefore, causing the overall supply of the lend token to become scarcer. The remaining 20% of the fees generated on Aave from fees are used to incentivize the liquidity providers.

In Conclusion

Aave an incredibly forward-thinking lending protocol. Aave was one of the first of its kind and continues to grow at a profound rate, compared to other similar Dapps. Aave is highly user friendly and offers its borrowers and lenders a basket of new and exciting ways to use their cryptocurrency!

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