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DeFi Spotlight: Aave

Jan 25, 2020 | Services

The DeFi industry is firing on all cylinders. Plenty of cryptocurrency users are flocking services such as MakerDAO and Aave.

This latter project has only recently launched and is already turning a lot of heads. A lot of crypto holders want to earn interest on deposits, after all.

An Overview of Aave

In the world of DeFi, numerous similarly competing solutions exist. Most offerings focus on lending and borrowing assets. Those who lend funds will be able to pocket interest in a passive manner. A lot of good money can be made by letting dormant holdings go to work. 

Fintoism DeFi Decentralized Finance

Aave works in this manner as well, albeit it’s a bit different under the hood. Unlike most other solutions, this protocol is non-custodial. It does not require users to give up control of their holdings at any given time. Even so, customers can still earn interest and borrow assets.

The use of aTokens on Aave

To ensure users can control their assets, Aave uses an interesting system. aTokens are the native asset when using this protocol. Every aToken is pegged 1:1 with the underlying asset. The added benefit is how users can see real-time interest accumulate in their wallet directly. 

All of the interest earned can be sent to any public Ethereum address on demand. This gives users a lot more control over their DeFi-related assets in general. It is an interesting system which offers plenty of options. Another key example of how powerful decentralized finance can become over the next few years.

Rate Switching and Flash Loans

Unique features offered by Aave are not hard to find. The rate switching option is of great interest. It lets users shift between variable and stable interest rates. By using this option, lenders can maximize their interest potential accordingly. 

Secondly, there are the flash loans. Users can, through this option, borrow money quickly without collateral. Albeit this may sound risky to lenders, it is an intriguing avenue to explore. How lucrative or useful this option will turn out to be, remains difficult to predict. Giving clients more options is always a positive sign.

Supported Assets

Engaging in the world of decentralized assets can be done through certain assets. In the case of Aave, over a dozen assets can be used. Those include Ethereum, various ERC20 assets, and stablecoins. 

Fintoism Aave Supported Assets

Speaking of which, multiple stablecoins can earn good interest. Dai and TrueUSD provide very high deposit ADR. USD Coin and USDT are also rather lucrative options. These rates are certainly higher compared to simply lending cryptocurrencies like Ethereum or ERC20 tokens.

Will it Make you Money?

As is always the case, financial opportunities present risks. Lending and borrowing money should not be done without giving it proper thought. There is a chance users may lose money if going in blond.  

That applies as much to cryptocurrency as traditional finance. Innovative solutions such as Aave make it easier to engage in these opportunities. However, it cannot eliminate all risk from the equation either. 

Images courtesy of their respective sources.

Fintoism is not providing financial or investment advice. All content published on this platform is for entertainment and educational purposes only.

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<a href="https://fintoism.com/author/oglock/" target="_self">JP Buntinx</a>

JP Buntinx

JP Buntinx is passionate about cryptocurrencies, fintech, blockchain, and finance. He currently resides in Belgium.

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