The Aave protocol caters to crypto users with a number of novel financial instruments. Started in earnest only two years ago, the platform’s services already involve billions of dollars. Users can easily deposit assets in crypto to receive rewards. As a result, many users want to know how to use Aave?
As blockchain technology and cryptocurrencies go mainstream, more users begin to demand services similar to those of modern banking. This is symptomatic of the way in which crypto funds travel much easier, freer today than they did only a few years back.
However, though simple, not many know how to use the Aave protocol — we explain how here. We will look at the way in which the platform functions and how you can make its system work for your daily crypto needs.
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In this guide:
What is Aave?
Aave is a DApp that runs on the Ethereum blockchain and allows the lending and borrowing of cryptocurrency. It allows users to borrow or lend a variety of cryptocurrencies. This platform tries to create a unique cryptocurrency lending and borrowing system.
Anyone can put their assets to work as part of various crypto-financial tools, and Aave is part of that ecosystem. For example, users can take DeFi loans. They can also earn interest yields on their deposits. In other words, Aave is a bridge between the classic financial sector and the innovative crypto world.
How to supply
Aave is an easy-to-use crypto lending and borrowing protocol. The first step, however, is to deposit funds to the platform. To do that, you will need to start by connecting your crypto wallet.
First, you will be redirected toward a different segment of the platform. Click on “Launch App.”
The platform will offer you several options. These include hardware wallets such as Ledger. Naturally, you can also use options such as Coinbase or the highly popular MetaMask. For our example, we will be using the latter.
Next, you will want to deposit funds into Aave. This allows you to borrow, stake, or vote in the platform’s governance system (Note that you may also use the “Switch to Aave classic option”).
Simply go to the “Deposit” section. Click on the option, then choose the asset and the amount that you wish to deposit. As soon as the transaction is confirmed, you are able to use the amount inside of the platform.
You can deposit any amount that you want. There is a minimum or maximum value. Of course, the total value of your interest will be based on how much you choose to deposit.
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Note that you can deselect your asset once you deposit. By doing this, the asset will not be used for depositing collateral. You can also choose to withdraw your funds. This can be done as long as the funds are not in use for any of the functions mentioned previously.
Staking on Aave
Staking is one of the best ways to take advantage of the Aave platform. To stake, you will need the platform’s native tokens. One way to acquire the token is through any of the crypto exchanges.
You will need to choose the “Stake” option. This appears on the new or the classic version of the platform.
Once you have made your decision, you need to confirm the amount that you plan to stake. This will lock it into the system.
The platform will also show you the rewards that you are set to receive. You will be shown the APR (annual percentage rate). This is the value that you receive per year when you make your funds accessible for loans. This value considers the rates and fees paid by borrowers.
You will also be shown a value known as “slashing.” This refers to the fee that could be lost in the unlikely event of the network being compromised. If this should happen, this amount would be used to maintain the network in functional order.
When you want to stop staking, simply choose the “Unstake” option and input the amount that you wish to remove. There will be a “Cooldown” period. This is the time required for the amount to become available for the unstaking process. Once the cooldown has elapsed, users have two days in which they can remove their funds.
You will also need to claim your rewards. For that, visit the staking section and click “Claim.” The rewards end up in your wallet. It is the wallet from where you deposited the funds initially.
How to borrow
The AAVE protocol also allows users to borrow funds. In order to do that, once more, you will first need to deposit some of the native tokens to the platform. The deposited sums are used as collateral when taking out a crypto loan. You will then click on the “Borrow” option that is shown in your dashboard.
Once on the borrowing page, you will be provided with a list of tokens. From this, choose the token that you wish to borrow. You will be shown how much you are able to borrow and the APY.
When you click on a coin, you will be provided additional financial information. For example, you have displayed the Utilization rate. This indicates how much of the asset is borrowed funds and how much is available. This shows you the popularity of the particular asset. This rate will also determine the interest rate that you will need to pay. A higher rate determines a larger interest rate that you will pay.
You also get to see the available liquidity. This tells you how much you can borrow. Also displayed is the current market price for the asset in question.
Stable and variable rates
Aave also provides two options for rates. The platform offers a stable and variable rate. Essentially, by paying a higher interest rate, you can make the APY more stable. By doing this, you have a clearer, more predictable understanding of what reward you will receive per year.
The variable rate is similar to other platforms that provide these types of loans. The variable APY, however, depends on factors related to the fluctuation of the market. Visit your dashboard section to see the evolution of assets, including your APY. You are able to change your interest rate type from the dashboard menu, by choosing “APR type.”
Remember that you will repay the loan in the same asset that you borrowed. You will repay the borrowed value, as well as the interest rate. Note that the interest rate is calculated using an algorithm that considers the supply and demand for an asset. You can also use the collateral as a means to pay back the loan.
The platform also includes an indicator known as the “Health Factor.” The health factor indicates the safety of your deposited assets compared to the borrowed assets and their value. A higher value indicates a greater degree of security for your assets. Paying your loan or depositing additional funds will influence the health factor positively.
Governance on Aave
The governance feature is part of Aave’s attempt at creating a DeFi system. The Aave protocol’s security is maintained by the participation of Aave stakeholders, with the use of the protocol’s native token.
Users can vote provided that they have AAVE tokens or stkAAVE — the staked AAVE token.
To vote, you will need to visit the “Governance” section. You will select the relevant proposal. Finally, confirm your vote from the right-hand side.
You will be able to vote again upon depositing a new amount of AAVE tokens. The governance setup is part of what the platform calls “Aavenomics.” It is a method to implement new ideas on behalf of the community in a bid to improve the protocol.
Aave’s flash loans
Flash loans can be used to borrow money quickly, without paying collateral. It is designed for developers, particularly. Users can borrow any amount of digital assets. In exchange, the funds must be returned in full within one block transaction.
Flash loans require building a specific type of contract. This contract instructs the system to pay the amount, as well as take back the amount, plus the interest required. Platforms such as Furucombo can be utilized for taking out flash loans.
Aave can help boost your crypto revenue
Platforms such as Aave appeal to this new brand of DeFi users. It rewards users who aren’t content with keeping their funds locked up in a wallet. Projects like Aave are taking advantage of the difficulties that the classic banking system provides. Smart contracts allow users to get away from many of the hassles of regular banking.
While there are risks to borrowing or lending money in crypto, the same can be said about the banking system. It, however, rarely provides the same types of rewards. Aave is an alternative that many people could consider.
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Frequently asked questions
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