Aave is a money market creation platform built on an open-source and non-custodial protocol that makes it easy for users to earn interests when deposits are made.

In recent times, decentralized finance (DeFi) and its applications have been interesting topics for discussions on different tech forums. We can attribute this to the efficacy of associated applications and use cases across different industries and sectors. At the moment, there are different blockchain-based lending protocols with their peculiarities including Maker, Compound, and of course, Aave.

These protocols have been able to build a name for themselves within the crypto community as they have surmounted great challenges and provided effective services.

Background

In 2018, Aave came into being after enjoying a successful ICO in 2017. The ETHLend token was able to raise about $16.2 million (USD), which paved the way for the establishment of Aave. Succeedingly, ETHLend functioned as a subsidiary.

However, in 2020, an announcement was made by ETHLend about its move to cease operations, while Aave would cover everything.

Team

The team consists of 18 brilliant minds working in synergy with Stani Kulechov (CEO), Nolvia Serrano (CMO), and Jordan Lazaro Gustave (COO) at the helm of affairs.

What is Aave?

Aave is a blockchain-based crypto lending platform that functions as a decentralized finance (DeFi) application. It may interest you to know that Aave brought the future to the present, because it is the first lending decentralized lending protocol with the framework of DeFis, and thus it paved the way for DeFi to become a thing.

The Rise of Aave

There have been lots of improvements since Aave rebranded from its former name ETHLend. And it may interest you to know that it has grown in leaps and bounds to become a popular DeFi application. A few months ago, Aave left the drawing board and came out with some new features that are peculiar even to DeFi platforms such as Interest Rate Switching and Flash Loans.

Furthermore, there has been an unprecedented increase in the use of the native token (LEND). And we have the development team to than for that. They have been working on putting structures and frameworks in place to implement and facilitate a complete decentralized autonomous organization (DAO) for Aave’s operations.

It is clear to see that Aave goes beyond your usual crypto lending protocol as it is one of the most sought-after platforms in the DeFi space.

Aave Protocol

There are different frameworks that function together to make Aave what it is. However, one of the core aspects of the platform is the Aave Protocol. It made a move from being a mere decentralized lending framework to becoming a non-custodial open source protocol that gives users the ability to create personal money markets.

With the availability of lending pools, depositors will be able to create and provide liquidity when cryptocurrency is deposited in the lending pools. And then they will earn interests on the deposited funds. On the flip side, borrowers will be able to benefit from the lending pools and get loans.

Interestingly, there is no need for a match between the lender and the borrower. Instead, the deposits that are added to the pool are utilized for the provision of instant loans.

Flash Loans and Rate Switching

Aave comes with two unique selling points that make it stand out above the other crypto lending platforms. These two amazing features are:

Flash Loans

With Flash loans, users have access to loans without using collaterals. Using the aid of a custom-made smart contract, loans can be borrowed from available funds in the reserve pool. However, the loan is made available on the premise that the liquidity gets sent back to the pool prior to the end of the transaction.

If there is a default or delay in the payment, there will be a reversal of the transaction, which will also undo executed processes up until the point at which the default happened. This is a way to ensure that the funds available in the reverse pool are kept safe and secure from bad actors and defaulters.

One of the reasons why the Fast Loan feature was created was to make it easy for developers to create capital-intensive tools for liquidating, refinancing, or arbitrage purposes.

According to https://aave.com/, users can enjoy loans that are risk-free, and pay charges as low as 0.30% on flash loans. Aave is looking to provide a level playing field for users who are looking to access loans but do not have the collateral and documentation that traditional financial institutions require.

Rate Switching

The crypto market’s volatility can have some effect on the interest rates of loans. As a way to increase the flexibility of the system, Aave introduced a protocol that enables borrowers to alternate between floating and fixed interest rates. And this is an important tool in a decentralized market that is constantly affected by volatility.

When interest rates are high, there is a tendency for borrowers to pick the fixed-rate option. However, when there is increased volatility with an expected lower rate, borrowers may decide to opt for a floating interest rate. After all, it’s a way to bring some reduction to the costs attached to borrowing.

How to make money with Aave/LEND

Before anything else, it is imperative that you understand how the platform functions as it would help you define your purpose on the platform. Furthermore, it will assist you in identifying the right Aave tools to apply for optimum results.

Aave Liquidity Mining and Yield Farming

Aave intends to offer more incentivized services to the crypto community. And thus, the company is making moves to implement an effective liquidity mining and yield farming protocol that will see more Aave users get rewarded for providing liquidity.

Liquidity providers will be able to earn rewards when they create individual money markets to facilitate better loan services for both the lenders and borrowers. With the Aave yield farming tool, users will be able to put the LEND tokens to work and be able to generate optimum returns on their assets.

Aave yield farmers can either stake or check which of the lending pools offer the best yields.

How it works

On the Aave platform, users can borrow or lend cryptocurrencies. And one of the interesting catches here is that the operations are performed in a trustless and decentralized ecosystem. Invariably, it means that there are no AML (Anti Money Laundering) and KYC (Know Your Customer) documentations required.

More importantly, the possibility of middle-men or third parties interfering is eliminated.

Basically, the lenders on the platform deposit funds into pools while the borrowers get loans from these lending pools. The pools are created such that each of them puts aside some percentage of the deposited assets to function as reserves. These reserves will come in handy when the protocol experiences some volatility.

One of the benefits of this system of loaning is the convenience the lenders enjoy. They are at liberty to get their funds out whenever they want. Below is a representation of how Aave works.

Getting Started with LEND

It may interest you to know that the LEND token is available on different exchanges, however, Binance is one of the most reputable of the other exchanges. You can get your LEND tokens from Binance.

Wallets

Any wallet that supports the storage of ERC-20 tokens can also be used to store LEND tokens. And that leaves users with different options ranging from hardware wallets like Ledger, Trezor, KeepKey, to wallets like Exodus, MetaMask, MyEtherWallet, Atomic Wallet, etc.

How to lend on the Aave platform

One of the amazing attractions about Aave is the ease of performing transactions on the platform. Here are the steps to get started:

• Open your internet browser and go to the web address https://app.aave.com
• When on the website, create a connection with either of the following web 3.0 wallet protocols: Fortmatic, Coinbase Wallet, or MetaMask.
• After the connection, make a selection of the asset you intend to deposit, and the amount you want.

• Grant access to Aave to confirm that you have approved the transaction. Also, pay the required gas fees to facilitate the transaction to allow the transaction processes to begin.

• After the transaction process gets done, the interest rate will get confirmed and the rate changes can be viewed on the Aave app.

Borrowing

Interestingly users can also utilize their deposits as collateral if they intend to borrow some deposited assets. Here are the steps to borrow from the platform:

• Open your internet browser and go to the web address https://app.aave.com
• When on the website, create a connection with either of the following web 3.0 wallet protocols: Fortmatic, Coinbase Wallet, or MetaMask.
• At the top left corner click on the switch to select the “borrowing” option. There will be a little change to the interface, and a “borrow” button will appear at the center of the page.
• Click on the borrow button.
• Select the token you intend to use and then click on borrow.
• Next, you will be asked how much you intend to borrow. Select the desired value and click “Continue”.
• The next screen will require that you select the interest rate options where you are presented with the stable, and variable options. Click on continue after making your selection.
• You will be presented with the “transaction details” page where you can review the values of the different parameters. If you are comfortable with the values, you can hit submit to validate the transaction, or you can click on the back button to make your changes before submitting it.
• A MetaMask notification popup will appear, click on the continue button.
• Click on the “health factor”. Another popup will appear, click on the “Ok, got it” button to validate the transaction.

Lending and borrowing operations on the Aave platform is seamless and straightforward for anyone to understand.

Conclusion

One reason why a lot of people are still skeptical about joining the crypto trade is because they believe there are lots of risks involved in crypto investments. And this skepticism is one of the reasons why cryptocurrency has been slow at achieving mainstream adoption.

However, with crypto-based protocols like Aave, the move to adoption may experience some increased acceleration. Traditional lending systems are plagued with challenges involving trust, centralization, interference from third-parties, lack of transparency, lack of incentives, etc.

These challenges have made it difficult for lenders and borrowers to find common grounds to transact. However, the introduction of the Aave protocol seems like the proverbial light at the end of the tunnel. The Aave initiative has the potential to pave the way for the acceleration of DeFi adoption, as well as cryptocurrencies.

Lenders and borrowers now have the perfect platform to carry out their transactions without fear.

Resources:

AAVE guide on Boxmining: https://boxmining.com/aave-lend/