Aave is a Peer to peer lending platform that allows users to lend and borrow cryptocurrency assets, all of the processes are run on an algorithm that is utilized to determine the lending rates via current market supply and demand. Aave is also a token of which you can invest and hold yourself, those who hold the tokens are eligible to vote on making changes to the application, so a nice community feel.
In 2017, ETHlend was created which matched lenders to borrowers but there were flaws in the design, it wasn’t automatic, it was like the lending process that the banks use today in the sense that borrowers were waiting around for a match. Another issue was not having enough funds to match the amount of borrowers.
In 2020, Aave was created and hit the ground running using smart contracts, a smart contract is fully automated code based off of certain conditions. Aave cuts out the bank for those looking to borrow funds, instead – lenders will deposit money into a smart contract while earning interest, and borrowers can deposit their collateral into a separate contract to be able to borrow from any smart contract they wanted to.
There are several perks to using Aave;
– not bank regulated (no third party taking fees), free and open finance that is both fair and transparent
no one can see your transaction
https://app.aave.com/markets shows you the cryptocurrency asset information such as; market size, total borrowed, deposited APY, Borrow APY (Variable) Borrow APY (Stable) here is where you will make a decision as far as where you would like to deposit your asset.
Overcollateralized Loans – The lending process is a bit different; for example, with traditional lending by a bank, the bank will loan you $500, and you will pay back $520, with Aave you will use an overcollateralized structure where you will pay more money than you are borrowing sounds odd right? Let me explain, this is where the stats on the markets page come into play. You will want to choose to deposit into an asset that is on an upward trend so that when you cash out, you are able to cash out more than you deposited – giving you earned interest instantly instead of waiting years for it to accrue. Aave has a liquidation threshold where the collateral will automatically sell to cover the loan you’ve created so that the investors never lose money. Leveraged lending is also available with Aave as well.
Paying Back a Loan
Unlike with a regular bank loan, you won’t have a date of when it should be repaid – if your position is safe. You can casually log into Aave and repay your loan periodically since you’ve put in more than you borrowed, also the assets can still be liquidated once they have grown to the amount you’ve borrowed.
If you’ve ever applied for a loan through a bank, you most likely know the feeling of waiting in agony for all of the pieces of the loan to fall into place, with the use of smart contracts, Aave brings ease of use and opportunity for regular people to become lenders to earn extra money with interest. The easy to use platform gives you all of the factual information all in one unique place, so that you can make the best choice for your needs.