What are the different ways you can interact with cryptocurrency? You can buy, sell, store, trade, hold, and gift for starters. What about loans?
Cryptocurrency and DeFi allow for virtually anyone to start taking advantage of this new technology. For those without bank accounts, cryptocurrency “levels” the playing field. One of those emerging protocols is Aave.
If you’re wondering, “what is Aave?”, then this guide is for you. Before you know if you’ll be borrowing and lending Aave crypto in no time. Here’s a list of my recommended forex vendor. At the moment, there is only one recommended vendor.
What Is Aave?
Without the need for a centralized middleman, Aave is a DeFi (decentralized finance) protocol that allows for lending and borrowing cryptocurrency. When a user lends cryptocurrency, they’ll earn interest, when they borrow cryptocurrency, they’ll pay interest.
This is all made possible due to Ethereum’s blockchain and Aave’s DAO (decentralized autonomous organization). Users who hold the AAVE crypto operate the DAO and can vote too.
Lending on Aave
Now that we’ve answered the question, “what is Aave?”, let’s look into how lending works on the DeFi protocol.
Normally, when you need a loan, you’d head to the bank or another financial institution and have liquid cash on hand. The bank would then ask for collateral (in the form of cryptocurrency) in exchange for the loan. Every month you’d then pay the principal plus interest to the bank.
Borrowing on Aave
With Aave and DeFi, rather than having a bank, there are smart contracts. These smart contracts automate transactions via the Ethereum blockchain. In a nutshell, you are getting your loans from other people rather than a financial institution.
Due to cryptocurrency being volatile at times, DeFi platforms will demand over-collateralization. You’ll need to fork over much more than the loan as a result. If the price drops and the collateral amount doesn’t cover the borrowed amount, the collateral can be liquidated.
Liquidity Pools
There are over 20 ETH-based assets on Aave including stablecoins such as Tether (USDT), DAI, USD Coin (USDC), and Gemini Dollar (GUSD). You will see other markets on Aave as well such as Chainlink and Uniswap.
Users can deposit money such as Aave cryptocurrency into liquidity pools. These pools provide liquidity to others and allow the protocol to lend them out. Anyone who provides liquidity into a pool will receive new aTokens.
Be sure to keep an eye on the Aave price before doing so.
Ghost With the Most
Now when someone asks you, “what is Aave?”, you’ll know how to answer. We encourage you to use the DeFi protocol to see what all the fuss is about. Crypto is about playing and getting your hands dirty.
Compare and contrast to other DeFi protocols such as SushiSwap, UniSwap, and PancakeSwap. Is there one you prefer over the rest?
To keep up with the latest cryptocurrency trends, be sure to read our blog regularly. You will be glad that you did!
