Defi Aave protocol is one of the largest cryptocurrency lenders and its AAVE token has larger market snow than competitors Maker or Compound. Here’s how it works. Aave is a distributed lending protocol that allows users to borrow or borrow cryptocurrency money without having to go to a mediator.
Consumers are placing digital goods in “liquid pools,” which is the amount of protocol I can borrow.
What is Aave?
Aave is a decentralized finance (Defi) protocol that allows people to borrow and lend cryptocurrency without having to go through a central arbitrator. When they borrow, they earn interest; when they borrow, they pay interest. Aave is built on the Ethereum network. All tokens on the network also use the Ethereum blockchain to process transactions; known as ERC20 tokens. The protocol itself uses an independent organization or DAO. That means it is used and controlled by people who hold — and vote — the AAVE tokens.
Did you know about AAVE
Prior to renaming Aave, the product was known as ETHLend. Both were developed by a team led by Satan Kulechov, a Finnish law student. Traditionally, to get a loan, you will need to go to a bank or other financial institution with a lot of cash. The bank will apply for a mortgage – in the case of a car loan, which could be the title of the car itself – in exchange for the loan. Then pay the principal in the bank every month, plus interest. Defi is different. There is no bank. Instead, smart contracts (which are computer codes that perform automated transactions, such as trading when the token value reaches a certain threshold) do the hard work. Defi removes middlemen from commodities, futures contracts, and savings accounts.
How AAVE works?
In fact, that means you can get loans – in cryptocurrency – from people instead of financial institutions. However, you still have to put up a mortgage. In a Defi system that tries to be anonymous, that means some cryptocurrency tokens. And because cryptocurrency currencies are highly volatile, Defi platforms require extreme cooperation. So, to get a $ 500 crypto loan from Aave, you will need to combine more than that amount into a different cryptocurrency. If the price drops and the collateral is no longer included in the loan amount, your mortgage can be terminated, which means that the law takes you to repay your loan costs. Aave currently has more than 20 Ethereum-based warehouses, including stable coins Tether, DAI, USD Coin, and Gemini dollars. Other markets include Chainlink, Basic Attention Token, and Uniswap.
Why do you want to borrow a AAVE cryptocurrency?
While it often makes sense to buy or sell cryptocurrency, borrowing it may work in some cases. One of the most obvious is arbitrage. If you see token trading at different prices in different trades, you can make money by buying it in one place and selling it in another. However, since the tensions are usually small after considering transaction fees and spreads, you will need to have more cryptocurrency to make a decent profit. This is where Aave lends flash. Aave started using borrowed money, where people borrowed cryptocurrency money without collateral, used it to buy assets, sell those assets, and then return the real value to what they were doing while putting their profit into their pocket.
How AAVE liquidity pools work?
Let’s go back to Defi. In the early financial days of a divorce, if you wanted to borrow property, you would have to find someone on the platform to lend it to you — at the price and terms, you both agreed upon. Things have changed since then. Aave transcends the entire peer-to-peer lending process, instead of opting for a peer-to-peer loan.
Here’s how it works: Users put digital assets in “liquid pools.” These are just some of the goal-setting shareware that you can use. Anyone who puts his tokens in a pool and thus “gives money,” gets new Tokens. (“A” means “Aave.”) Therefore, if you put DAI in a liquidity pool, you will get a DAI as a refund.
As a Brand Manager, you will find platform cuts and interest rates on those Tokens. If you put tokens in a pool that already has a lot of extra money, you will not gain much. But if you apply the tokens the rule of law requires a lot, and you will do more. The same thing applies to borrowers — interest rates vary according to what you borrow.
Why not everyone?
A few reasons. First, you need to send the cryptocurrency to Aave to start using the platform; you cannot simply purchase it with a credit or debit card. (And with the cost of making Ethereum higher, some people are hesitant to submit smaller prices).
Second, there is a risk factor involved, and debt consolidation is an important part of how Aave manages debt and ensures that people can still afford to borrow money. If there is still not enough money after the collateral expires, Aave has a failsafe, known as the Safety Module. Inside the lake are the AAVE tokens that users have installed. When everything is calm, they receive an additional AAVE as compensation. If the system requires a cash injection, it will close the AAVE tokens.
What is the AAVE token used for?
Users can send AAVE tokens as security. If they do, their lending limits are raised. Those who borrow AAVE can also exceed the loan amount and receive a discount on payments when they submit it as collateral. Aave is available for you to trade or buy on a different cryptocurrency exchanges, including Binance and Huobi Global.