With cryptocurrencies being such lucrative assets, it makes sense to buy more. However, with their high volatility, trading them may not always be the most ideal choice. Fortunately, there’s another way to earn from crypto aside from trading: lending them to make an interest. And you can do this and more with the Aave network.
Created by Stani Kulechov in 2017, Aave is a cryptocurrency network that makes this possible by offering speedy transactions paired with loaning and borrowing benefits.
To know more about this groundbreaking crypto, join us at BTC Post as we discuss Aave and why you should invest in this cryptocurrency today in the sections below.
What is Aave?
The Aave network is a blockchain based on the Ethereum money market network so it can use its decentralised finance (DeFi) protocol.
This protocol allows investors to make decentralised transactions free from any centralised organisation such as banks and the government. As a result, transaction fees are significantly cheaper and faster since the blockchain network doesn’t follow traditional and bureaucratic protocols.
Though most cryptocurrency blockchains follow a similar decentralised concept, what differentiates the DeFi protocol from all the others is you get to earn a little percentage from doing transactions through it.
In Aave’s case, these profitable transactions include borrowing and lending of cryptocurrencies. When investors then have to pay for their loans, the borrowed tokens accumulate additional assets through interest. Because of this, the blockchain network fulfils its DeFi protocol promise of giving transactors passive income within the blockchain.
How Aave works
Aave uses a liquidity pool-based system where lenders pool together a certain percentage of the cryptocurrency they’re willing to place. These tokens can then be borrowed by the members of the Aave blockchain network.
Once members of the blockchain have paid off their borrowed cryptocurrencies, lenders will make a profit. This is because paying off loans within the Aave blockchain accumulates a certain interest and this interest goes to the lender.
The value of the interest rate is based on the utilisation rate of certain cryptocurrencies within the liquidity pool. Meaning, the value you earn can rise or fall depending on how often and how much people are using a certain cryptocurrency.
Like many cryptocurrency blockchains, the Aave network has its own native token: AAVE. Currently valued at $141.22/token, AAVE is ranked the 53rd most valuable cryptocurrency today with a market cap of $1,928,813,282. This serves several purposes and grants the following benefits:
- Fee-less/discounted transactions – When you make loans denominated in the AAVE token, you won’t have to pay additional fees. However, if you borrow non-AAVE tokens but you have the AAVE tokens in your wallet, you get discounted transactions for it depending on the amount you’ve borrowed.
- Token loan viewing – Know which cryptocurrencies are good to loan before anyone else if you’re using AAVE tokens. This service is offered only to those who own this token within the blockchain network.
- Borrow more tokens – Whenever you use AAVE tokens as your collateral for borrowing, you get to borrow more cryptocurrencies from the liquidity pool-based systems of this network.
- Flash loans – Having AAVE tokens also lets you take flash loans where you can borrow money right away even without collateral. However, paying for these crypto loans requires more than the initial loaned amount.
Those who use flash loans need to pay an additional fee of 0.09% of the initial borrowed cryptocurrency value plus the loaned amount within a certain time inside the AAVE blockchain.
If they fail to do so, the transaction made within the blockchain is deleted, making it appear that the transaction process wasn’t even made in the first place.
All these are made possible thanks to the liquidity pool ingrained within the system.
Features to expect in the Aave network
Now that you know what Aave is and how it works, below are some of the features you can enjoy by being a part of this network:
Though creating new blocks within most crypto networks is typically time-consuming, it’s not the case in Aave. In this network, a transaction is complete for only 13 seconds. For comparison, Bitcoin’s transaction process takes approximately 10 minutes to complete.
This fast transaction rate means you won’t have to worry about price slippage and you can do more with your funds in short periods of time.
Loan different cryptocurrencies
In the Aave blockchain, you can loan different cryptocurrencies other than the one you’ve deposited. For example, if you have deposited Ether (ETH) tokens, you can withdraw another cryptocurrency of your choice. This allows you to do transactions that may only be allowed with a certain cryptocurrency network.
Then, you may sell this withdrawn token at a higher price than what you’ve lent it for. Doing so allows you to pay your original loan and its interest while making a profit from the difference in price.
Earn passive income
As mentioned above, lenders earn an interest rate from borrowers. This is made possible thanks to another token within the Aave network called ‘aTokens’. When you deposit funds for lending, you receive aTokens whose value is pegged 1:1 to the deposited asset.
This means your aTokens will increase as your assets gain interest. You can then store, trade and transfer these tokens to whichever cryptocurrency you want to reap your passive income.
Step into the future of crypto with Aave
Get the most out of your crypto investments when you lend and borrow in the Aave network. With all the DeFi protocols and products Aave offers, you’ll have plenty of opportunities to grow your crypto today and in the future.
Know more about crypto innovations here at BTC Post and always be one step ahead in the crypto game.
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