Borrow and Lend Digital Assets on the Aave Platform – An Open-Source DeFi Protocol

Project Reviews / 12.04.2020

The crypto space has grown tremendously over the years, but not much progress has been made when it comes to 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 comes with the traditional loan features but also includes several unique features that make it stand out. 

In this article, we will review the platform and understand its features as well as 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 to 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. 

Currently, Aave’s market size is $44,635,809.23 and has 17 digital assets listed on the website. 

Aave works by allowing users to participate as either a depositor or a borrower. Depositors get to earn a passive income by providing liquidity to the market. Borrowers, on the other hand, can get a loan either perpetually or in as one-block liquidity. 

Aave’s protocol is a set of smart contracts on Ethereum blockchain. These contracts eliminate the need for intermediaries and therefore, offer more security. Besides, several auditors develop the security protocol for Aave. Through the platform, users get to interact with smart contracts and blockchain data. 

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 of the products and services that you will benefit from by trading on the Aave platform. 

  • aTokens

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 have to deposit their digital assets in the Aave protocol and then 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 have the interest redirected to an Ethereum public address whenever you want. 

Because the aTokens are pegged to underlying assets, you get to earn interest on stablecoins such as aDai and aUSDT.

  • Flash Loans

Although several platforms offer loans for digital assets, this product from Aave is quite innovative. These flash loans are the first option in decentralized finance that offer uncollateralized loans. As long as the liquidity is returned to the pool within one transaction block, there is no need for collateral.

Thanks to the zero collateral, there is the safety of the funds in the reserve pool. If the liquidity cannot get back to the pool, the block reverses the entire transaction to undo the entire actions up until that time. 

Flash loans are useful for everyone, seeing as they don’t require any capital to get started. Therefore, the entry barrier is quite low, making it quite affordable for anyone. 

  • Referral Program

Aave’s referral program is quite lucrative. To be a part of the program, you will need to fill the referral form and get a referral code after 1-2 business days. Users must input the code for either deposit or redeem calls. The program offers a 20% fee-share. 

Whenever a borrower takes 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%

  • Aave Pay

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. 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 we have mentioned above, Aave is quite an easy platform to use. To get started, you must first head over to the Aave website. 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. Doing so also increases the chances of borrowing more digital assets. 

The Aave interface is quite straightforward. If you wish to deposit some assets, you only need to search for it 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 get into 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 have a value that is equivalent to the underlying assets. The tokens earn either stable or variable rates, and users can switch between the two, however much they like. 

Final Word

The Aave platform is definitely an innovative product in the crypto space. Through the platform, you get to borrow and lend digital assets and watch your balance grow in real-time. Besides all the benefits we have already mentioned, you can also take part in the bug bounty campaign that lets you earn rewards whenever you find bugs and vulnerabilities on the platform. 

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Wayne is a Blockchain enthusiast and expert in crypto trading. Currently, he covers trendy issues on digital currencies.