Skip to main content

What is AAVE | Complete Guide for a begineer.


The DEFI sector is hot right now. Everyone is diving into this relatively unexplored sea of immense opportunity. Lending margin trading, flash loan swaps, the whole shebang. In fact, given the relative gold rush in sector, you may have been wondering if there was still opportunities for you to jump on opportunities to bank some juicy Defi dollars . Well, there is and it's called AAVE. I'm guy your crypto guru and in this article I will give you exactly what you need to know about our way. I'll also take you through this lending platform step by step and show you some of its coolest features. Ohh yes, and I also have a few personal tips that you can use when trying to maximise games here so be sure. To stick around for those. Now before I get going, a few things I need to get off my chest. Firstly, as always, I am no financial advisor. I a, Blogger who only presents information for your educational benefit. Always dyor. Also if you're new to the cryptolibrarynow , welcome-welcome on this channel. I regularly cover coins, platforms, guides another juicy crypto tips.Okay enough wish waash onwards with AAVE. 

AAVE Basics -:

So what the hell is AAVE? Well, it's an open source define lending protocol that allows users to earn interest on deposits and borrow a whole host of different cryptocurrencies. It was built on the Ethereum blockchain and is hence completely decentralized. This makes it quite different from the other centralise lending platforms such a Celsius,Block 5 next etc. As its not controlled by any one entity lending is controlled on the blockchain through the use of smart contracts. AAVE was actually one of the first Ethereum based lending platforms. On the market when it launched as Eastland back in 2017, in September of 2018, they rebranded to our way and a project took on a whole new form just in time for that define revolution. Oh, and here's a fun fact. Did you know that our way means Ghost in Finnish? What is it with the theme community and ghosts anyways? Are they has embraced the defi revolution with open arms? Not only did they offer support for as many as 17 different cryptocurrency assets, they also expanded beyond a simple money market protocol. Today they offer flash loans. Uncollateralised loans, rate switching and other exotic features will go over all of this in a bit. Currently, when it comes to the value of all funds locked up in the platform, our way is sitting at number 4 for all DEFIapps and at number 3 for lending dance. What is really impressive though, is the amount of growth that has come on to the platform in just the past 3 months. Although to be fair, similar growth numbers. Have come to other   DEFI platform in this time. So that about does it with the intros, it's time to die into the platform, starting with their creme-de-la-creme their lending platform. 

AAVE platform overview -:

Over on the way AAVE home page, you have a complete overview of their lending market. This is the value of all the lending pools currently on the of a protocol. 

AAVE platform

Below that you'll see all of the markets for the individual crypto coins, something that you should know is that all of these markets are over collateralised. This basically means you have more fun supplied then have been taken out. He did shows that the system is always solvent and your lenders are not left holding the bag. Anyways, next to the coin in question, you can see the rate that you will be able to get if you were to deposit crypto into one of the smart contracts. This is an APY rate that will fluctuate based on the demand and supply in the lending market. They do, however, show you the 30 day average over here. Then on the borrow side, you have 2 rates. One is the current variable rate that is live on the market. Because this is a variable rate, it may change later. However, over here you have your stable percentage rate. This is something unique to our way and its there fixed rate features. This allows users to lock in an interest rate for the remainder off their loan.

Using AAVE to lend -:

Anyways, let's get our hands a bit dirty with this Defi delight. I'm going to supply some die to the lending pool here and earn some interest. Now of course, because this is a theory that you'll have to connect it with a Web 3.0 wallet. It supports quite a few, but for this example I'll be using Meta mask. One side print the connection time taken to the main UI of the dump. Let's take a bit of a closer look at the DI market showing here. We have all the stats on the lending pool, utilization rates, liquidity, amount borrowed, interest rates, etc. The current rates are at 6.75%, which are not the highest they've been compared to previous 30 days, but definitely better than your local Chase Bank. Anyways, if I want to supply this time, all I need to do is hit deposit over here it will bring up a screen where I can deposit my crypto. You'll see all the same stats. The right here that you saw on the main overview. Ohh and you chaps me appreciate this. AAVE has actually integrated with Fiat gateways over here. This basically means that you can directly purchase your die with your fiat right there on the platform, how neat is that? Now, given that I have die in my wallet already, I'm just going to send this over. I'll need to approve on my metamask was first. Give that a few seconds to confirm, and then once done, you are ready to deposit. Confirm the deposit on your metal mask. Wait for the confirmation to work its way through the blockchain and that's it. You are now supplying diet to the lending pool and you can monitor your accrued interest in the AAVE dashboard. You should also note that when you're supplying funds to AAVE, you will receive there A tokens. These are similar to C tokens that I talked about in my compound finance article. The only difference here is that these are packed to the value of the underlying token and your balance will increase as you earn that interest. You can of course withdraw liquidity whenever you want and when that is done your A die tokens will be converted back into the DIE tokens. This deposit does not. Early on, interest, but it also serves as collateral Should I want to borrow any crypto? Doing so is also pretty simple, apart from a few specific quirks that you need to know about.

Borrowing with AAVE -:

Ftrstly when taking out the loan, you will have 2 options. You can either lend the crypto via variable rate or via what they call their stable rating. So what is that? Well, it basically acts like a fixed rate in the short to medium term. However, it is not guaranteed in the same way that you have a fixed rate loan from your bank. It can be rebalanced if there are severe changes in the market conditions, so just be aware of that AAVE to fixed rate is always higher than the floating. To account for risk, the exact rate that you will be charge depends on the utilization ratio in the pool as there is more demand to borrow both of the rates will slowly increase. There is a particular turning point where the rate spike in order to account for the demand. This is currently at 90% utilization ratio. This is just a rough overview. If you want a bit more information then you can always take a look through the model in their White paper. If you fancy some light reading before bed. The other thing to note about lending here is that you will have to ensure that your position is always above the liquidation threshold. This is because should you drop below 80% as is the example here with that time then you will have to fork over a liquidation penalty which is 5% not worth losing that for nothing floks. Anyways that is the basic functionality of our way. Already a pretty impressive piece of kid, but this is not just a simple lending tool. Ohh know my friends, this is a vertical Swiss army knife for the defi space.

Flash Loans Using AAVE -:


Flash loans some love them and some hate them, but these nations, inventions of the DeFI space cannot be ignored. Are there is another one of those platforms that provide the functionality to use them now a quick recap on flash loans. These are uncollateralised loans that can be taken out in an instant. Just as long as they are repaid within the same transaction, they are approved. If they are not repaid then the whole transaction is void and no funds would ever have been originated. So at the base level, you can take out a loan for us much crypto you like just as long as you pay that back within the same transaction + a 0.09% fee your golden. Okay I know what you thinking, guy is the point of all this. Well, quite a lot, actually. Firstly, taking out flash lens could allow you to quickly arbitrage any token miss prices on decentralized exchanges. For example, if the guy token over on uniswap, what is trading at $100, but its trading at 102 $ over at dydx then there is an opportunity to bag an instant profit here I could take out a massive flash loan. Instantly by X coin on uniswap, sell it on DYDX and then repay the loan are all in one transaction. Of course, there will be fees etc But as long as the profit is above the fees, it's worth a spin. Then another use of these flash loan is to refinance lending. For example, you could be paying a rate of 10% on compound finance, but you have a better rate at DYDX, let's say 5%. You can then refinance loan down to 5% without any collateral. All you have to do is flash loan on AAVE, pay down the compound debt, borrow on the DY, DX and repay. On our way all in one go. Flashlights have also been used with great effect in the ever popular practice of yield farming. Farmers would use them to move collateral from one protocol to another in order to earn additional liquidity tokens and benefits. Anyways are there was one of the first few default protocols to implement flash loans and they have already been integrated into a number of other projects. If you want to start using flash loan functionality on our way then I've linked to the docs in the description below. I should of course point out that flash loans do require an understanding of smart contract programming, so if you want to Max those DEFI games, you may want to brush up on your solidity. Moving on that one more thing that I want to touch on is the introduction of additional lending markets on our way, more specifically the UNI swap market. 

Liquidity Pool Token Lending -:

So that is the time now uni swap is one of the most popular decentralized crypto exchanges on the market.I need to swap. Not only can you stop your tokens, but you can also supply tokens and operate what is called a liquidity pool anyways. By providing liquidity you can earn fees, although you are not guaranteed any sort of return like those that you'll be earning in a lending protocol. That is why project started issuing what are called liquidity pool or LP tokens, these are basically tokens that issued by the project as an incentive to provide that liquidity. Now what's pretty neat about this is that our way is one of the first protocols that I've seen that have opened up a lending market for these exotic tokens. You will eventually be able to lend or borrow these tokens. You no longer have to rely on their price appreciation in order to make some gains on LP tokens. It's actually pretty mindblowing if you ask me now. This is a relatively new additional, which means that there is no one supplying these tokens currently. One hopes that as LP token start gaining traction, more and more users will start to supply them over on this market. Ohh and you will also have noticed that AAVE is about to introduce a set protocol market. This is a whole other kettle of fish, but it will also allow for lending market to open up for those unique set tokens. These are basically the spoke asset management tokens issued over on total sets. I won't go into it. Here, as that is definitely a topic for another article. Anyways, so I've been talking about AAVE for a considerable period of time, but I haven't even touched on its own unique lens token, so let's now take a look at that shall we. 

LEND Tokennomics -:

As mentioned, lend was sold in a crowd sale back in 2017 and its ERC 20 token that was issued on the theory in blockchain. There's a total supply that's just shy of 1.3 billion, where is one billion of those were sold in the crowd sale. The original purpose of the land token was to be a utility token, one that provided users with the number of benefits such as reduced fees, staking rewards and improved loan to value ratios. However, as Ethlend rebranded as aavey t lens tokens took on use cases that were related to governance holders could now use lend in order to quote on important proposals in the ecosystem. These proposals of wide ranging and include interest rate models, liquidation configurations and whether AAVE should consider adding new assets in terms of the current tokennomics. The Lent open 80% of the trading fees generated on our way. I used to purchase land tokens. Turn. This therefore means that the supply of Lent is decreasing daily. The more fees that are generated, this naturally creates more value for those that hotel Ln token. Oh, and you may be wondering what happens with that additional 20% in fees. No, it doesn't go to the developer's. It's used in order to incentivise. Liquidity providers this no doubt helps to further grow away ecosystem. So let's take a bit of a closer look at the economics here. Lend tokens have value not just because of the rights taken for voting etc, but also because of their limitations in supply. This supply is constantly decreasing with the growth. Of the ecosystem, holiday is also spending 20% of their fees in order to grow the ecosystem and generate more fees, more fees, more burn, more incentives. It's no wonder, then, why the Len token has been one of the best performing on the market recently. Just trying to wrap your head around this since January of this year lend is up over 16 times. This defy crazy feels just like 2017. However, I would counter that this is something different. Unlike overhyped I CEO's with nothing but a white paper, AAVE has built one of the most popular lending platforms on the market. Moreover, AAVE is looking to expand the use cases for the Len token and eventually migrated to a completely new  AAVE token. Oh, and here is a fun fact in order to accelerate the growth of the of a protocol and the RVIN mix the team. Has taken on some funding from venture capital firms. These were 3 arrows, capital and framework benches and instead over traditional equity based PC model. These boots only wanted one thing lend tokens. They  invested $3,000,000 when the Len token was 10 cents and now hold over $7,000,000 worth of London tokens, so that is no doubt a vote of confidence from those who you know are in the know. Indeed, away is innovating beyond just it takes to comics. There are some pretty impressive new features that are being implemented in the main lending protocol. 

Credit Delegation -:

One of the most recent, at least that I want to talk about now is uncollateralised long term lending. This is something that has not been done at any other default protocol in the past, basically lending for a period of time that does not require any collateral okay I know what you're thinking. God, how on Earth can this be secure or sustainable? Well, it's through a method of credit delegation. Basically, while you may not have to put up. Kalash roads take out the loan. Someone else may have and you can lend against, said collateral. You can basically think of this as a decentralized, an automated version of surety. This is often used in the traditional lending space. In Aave Credit Delegation System, 2 parties into a fixed agreement to determine interest rates. Terms and covenants enforced by open laws block chain based contracts. You can see exactly how this works in the schematic, by our way. Oh, and this brings me to one of the most pressing questions of all why have they chosen Karan and chat? I mean, what happens to Alison Bob? Do the folks over at are they think that Karen is really likely to backstop credit for Chan? We all know that chance are not the most technically savvy guys out there. Well, turns out Karen is not a stupid as she peers, she is able to earn more return on the funds. She is deposited by charging a higher interest rate. The increased rate compensates for additional credit risk just the way banks view it. Anyways, this is still a new feature that is only just been introduced. They are currently only testing it out with some initial well known users, but it is a taste of things to come. 

Does AAVE hold Potential?

Now I do want to leave you with a few of my final thoughts. AAVE is no doubt revolutionary. Lending protocol there. One of the first projects that launched decentralized lending and their recent growth is astounding. I use are regular and I think that is perhaps one of the most user friendly define lending platforms in the space. Its also full of features like flash loans, liquidity, token lending. And we need interest rate models. However, are they should not be viewed in isolation.  DEFI is not a single project, but a collection of different protocols, platforms and tools in order to make the most of the space. You should be able to use them interdependently. They should compliment each other and help to optimise the lending or trading strategies. Yes, there are benefits to Hudlling some lend and with the transition to RY tokens these use cases could explode. Let's also not forget your Kriti mining and staking feature could open our way up to those industrious define yield farmers. However, at the end of the day, the promise of Aave is inextricably tide to that of the Firehole. You have to decide as to whether define really is the financial revolution. We think it is. And if you come to that. Determination how much of the market share will always be able to capture? It's also important to know about the risks that come from swimming in the DEFI waters. Smart contract bugs, hacks, Black Swan market moves, liquidations. These are all risks that cannot be ignored, but at the end of the day, thats the beauty of defining. You have full control but the rewards and risks. Are in your hands and that's all folks. My review and platform overview of our way.So what do you guys think? The platform, any other dfive protocols you prefer? Please hit me up in the comments , My next review is being cooked up as we speak. Thanks for sticking in that you really are a loyal reader .

For more such interesting reads click on me


Popular posts from this blog

What is Tectonic Crypto Burn Mechanism for Tonic | How To Stake Tonic Explained 2022.

    Table Of Content -: What is Tectonic Crypto Burn Mechanism for Tonic? Why is Tonic Going down? What is Tectonic? what is Tonic ? What is Tonic Staking ? How Does Tonic Staking Works? Lending Assets Borrowing Assets How to Stake Tonic? How to Unstake Tonic? What is Tectonic Crypto Burn Mechanism for Tonic? The answer is Staking , as more people borrow and repay their loans on Tectonic , the staking module will buy more TONIC off the market resulting in a lower market supply. Why is TONIC going down ? Tonic is going down because of two reasons-: 1st)The Staking Module buying more Tonic off the market resulting in a lower market supply , thus high burn rate. 2nd)TONIC Iis based Kronos blockchain , and as kronos is going down so expecteadly TONIC is also going down. Disclaimer -: I need to give you a disclaimer before I talk about this bill. I am not a financial advisor , I'm just an educator and this blog post is written with the sole purpose of providing you factual information.

What Is Crypto Mining | For Beginners.

Hi folks. Do you know something I've learned recently is that it's very, very useful to know one of these shadowy, supercoder types who keep Mr Ajit Doval awake at night? Well, not literally. Well, I suppose you never know. Anyway, I have a friend. Called Rakesh and he is a whiz with computers and he has very kindly put together this little beauty for me. Now it doesn't look like much, does it? Well, this is actually my very first crypto mining rig. Crypto Mining In India!?!.Now, wait, I know what some of you may be thinking. Guy, come off it. Crypto mining is big business. You'd need a room filled with thousands of those if you wanted to become a crypto miner. Well, you're half right. But before I talk about this chap here, I want to talk briefly about the mining process, because it's one of the most technical. And tricky aspects of crypto to try and wrap your brain around so. Here goes, and. So let's start with Bitcoin now.  How Is Bitcoin Mining Done? Her

Bitcoin Mining Climate Change: How Much Does It Really Matter?

  What Is Crypto Mining? Bitcoin, Ethereum, Litecoin and a few other large cryptocurrencies use a proof of work consensus mechanism. In simple terms, a consensus mechanism is the process used by multiple entities to reach an agreement about. Fact, as a simple example, let's say you're hanging out with eight of your friends and you're deciding whether to go to the movies or to the beach. The consensus mechanism for that decision could be a simple majority vote, or it could be that all of you must vote to do the same activity. Cryptocurrency works the same way, except instead of a group of friends deciding what to do for fun, it's a group of computers spread around the world deciding which cryptocurrency transactions are valid. Rather than confirm one transaction at a time, cryptocurrency networks group multiple transactions into a single block. Each block contains a record of the previous block, hence the term blockchain. For blockchains like bitcoins, they're reward