Cryptocurrency is gaining more and more popularity and has become a real potential competitor to banks. As a decentralized global digital currency, crypto is beyond the control of banks, which have huge transaction fees and are often slow to process transactions.
Cryptocurrency’s immunity to ancient methods of government control and interference, along with the myriad of innovations it offers, makes it attractive to a growing number of people around the world.
With the unprecedented growth of the decentralized finance (DeFi) industry, the Aave Network (AAVE) has become a market leader and occupies a major position in the crypto lending and borrowing sector.
Read to learn All you need to know about Aave, the most popular DeFi protocol, trading around $330 with a market capitalization of over $4 billion. We will discuss how Aave works, its advantages over other protocols, and where and how to buy Aave tokens or borrow on Aave.
A Brief History of AAVE
Aave was founded in November 2017 by developer Stani Kulechov who originally launched Aave as ETHLend, with the original token LEND, after its initial coin offering (ICO) raised $16.2 million. The crypto-backed platform ETHLend will connect cryptocurrency lenders and borrowers, making it possible to borrow assets and for lenders to earn interest.
ETHLend was later modified and rebranded to Aave. The Aave protocol was officially launched on the Ethereum blockchain on January 9, 2020, providing instant access to “flash loans” to users without the need for collateral.
The Aave protocol has been described as a “decentralised, open source, non-security money market protocol” where depositors can earn interest by providing liquidity to lending pools. The main difference was Aave’s algorithmic money market functionality versus ETHLend’s individual matching borrowers with appropriate lenders. In Aave’s liquidity pool system, crypto loan assets are pooled together, and interest rates are determined mathematically. In case of short supply of assets, higher interest rates are set; On the contrary, interest is set lower if there is an abundance of supply from the asset.
Aave has introduced new digital products and services, such as Aave Pocket, Aave Lending (SaaS), Aave Gaming, Aave Custody, and Aave Clearing.
How does AAVE work?
As an open source, custody-less lending protocol, Aave facilitates loans in a variety of cryptocurrencies. Under the requirements of the system, lenders are required to deposit their money in liquidity pools, and borrowers can borrow from these liquidity pools. However, borrowers must deposit a security amount greater than the amount they borrow in another currency. The Aave protocol contains an algorithm that automatically filters out borrower collateral if its value falls below a specified percentage to protect against volatility.
Aave offers unsecured loans, i.e. quick loans, allowing you to borrow instantly and easily, without collateral, provided that the liquidity is returned to the pool within a single transaction block. As an Aave spokesperson explains: “Fast Loans enables a dedicated smart contract to borrow assets from our reserve pools within a single transaction with the condition that liquidity is returned to the pool before the transaction ends. If this does not happen, the transaction is reversed to effectively undo the actions taken up to that point, This ensures the safety of the funds in the reserve pool.”
Aave is audited and secured – Every loan on the network is managed by a smart contract, verified by third-party auditors. Lenders and borrowers can interact with a user interface or API client or directly with smart contracts on the Ethereum network. Interest rates are flexible and are freely agreed upon by both parties due to the degree of trust granted.
Tokens: AAVE and aTokens
Aave’s AAVE token offers transaction fee discounts to users who offer AAVE as collateral, while users who borrow AAVE are not charged. AAVE holders also obtain governance rights through the Aave network.
a tokens: The second type of Aave token is the aToken. The Aave protocol allows users to earn real-time interest because deposits are tokenized as aTokens, which are issued in a 1:1 ratio when assets are deposited into the Aave liquidity pool. Interest is also paid in aTokens, but is transferred back to the principal when the lenders withdraw their funds.
HOW TO BUY AAVE
Now that you know how the protocol and tokens work, let’s take a quick look at how to buy AAVE. Follow this easy step-by-step guide on buying Aave!
Step 1: Create an account
As with all other cryptocurrencies, the first step to buying tokens is to create an account with an AAVE-enabled crypto exchange based on your location. The cryptocurrency exchange will act as a trading platform to buy and sell various tokens, such as BNB, Safemoon, Bitcoin, etc., for a transaction fee. Choose a trading platform that supports AAVE and a range of cryptocurrencies you wish to invest in.
Step Two: Get Wallet
This step is optional. You may need a cryptocurrency wallet to securely store your public and private keys. It also provides an easy-to-use interface to manage your crypto balances and allows you to transfer cryptocurrencies through the blockchain. Some wallets also allow users to buy and sell their crypto assets, etc. Aave is a platform built on top of Ethereum, which means that AAVE can be stored in the Ethereum wallet, of which there are many.
You can choose between a software or a hardware wallet.
Step 3: Buy Aave
You are now ready to purchase Aave. First, Choose the type of orderMarket order, limit order, sell stop order, buy stop order, limit stop order or trailing stop loss order. Your choice of order type will determine when your order will be executed and the price of each currency. Then, Select the amount of Aave tokens you want to buy. place your order: Depending on your order type, you may need to specify the maximum price you are willing to pay for each token, as well as the number of tokens you are willing to purchase. Wait for your broker to fill out your order. When your order is complete, you will see your tokens in your cryptocurrency wallet. If the broker cannot fill your order, they can cancel it at the end of the trading day or leave it open.
Where to buy Aave (Kraken’s recommendation)
There is Several ways to buy Aave.
Kraken is highly recommended due to the lowest transaction fees among all cryptocurrency exchanges. Kraken is also ranked as one of the most secure and reliable cryptocurrency exchanges in the world.
The protocols have been rigorously tested and are specifically designed to provide maximum security for your digital assets.
To purchase Aave using Kraken, simply follow the steps outlined in the previous chapter. You can fund your account using fiat currency.
How to buy AAVE using Coinsats
Coinstats are another great way to buy Aave. All you have to do is create an account at Coinstas. You can log into your Coinbase account or create a completely new profile. Find Aave and click Trade Aave. It should be noted that you can Trade Aave After linking your Coinstats profile to your Binance Smart Chain wallet.
You also have the option to make payments through fiat currency; However, this option is currently limited to US users.
Things to note when trading Aave
After completing your purchase, you can start trading immediately or keep your reserves of tokens. Since the market is volatile, with crypto values changing every now and then, you may be tempted to benefit from price swings in the short term.
You can also convert the extra Aave tokens you earned as earnings into stablecoins like USD Coin and Tether. In addition, some brokers allow Aave earnings to be converted directly into fiat currency such as US dollars and Euros.
While trading, especially if you are executing multiple trades per day, it is important to choose a broker with relatively low transaction fees.
Finally, you should ensure that stablecoins are used as collateral due to the volatility of cryptocurrencies. If the value of your guarantee drops significantly (beyond the specified limit), this may result in liquidation and additional fees.
Exchanges where you can buy Aave
Check out our list of cryptocurrency exchanges to buy and sell Aave:
Things to consider when choosing an exchange to buy Aave
There are a few things to consider when choosing among cryptocurrency exchanges:
- Reputation: This is perhaps the most important factor to consider. Exchange platforms are usually valued for their reputation, for example, Binance.
- Liquidity: You should also consider liquidity – how easy it is to convert Aave into cash or other coins. High liquidity means little price fluctuations.
- Transaction fees: As discussed in the previous chapter, you should consider exchanges with low transaction fees, such as Kraken, to make profitable transactions.
- Wash trade: Beware of the wash trade on the platform.
- User Reviews: User reviews are very valuable sources of information about products and services. The same applies to cryptocurrency exchanges. Consider platforms with positive customer experiences and ratings.
conclusion
Although there is a wide variety of cryptocurrencies, not all of them are profitable. There are significant risks involved with any form of cryptocurrency investment.
However, Aave has several advantages to consider while considering an investment. Among its main advantages:
- Aave is a decentralized lending system that allows clients to borrow, lend and earn interest on their crypto assets without intermediaries.
- The entire platform is very secure. It operates on the basis of the security module protocol, which prevents the system from experiencing a shortage of capital. When there are not enough assets to pay the lender’s deposits, AAVE tokens held in the security unit are sold to cover the shortfall.
- Aave has a wide range of innovative decentralized finance products, such as fast loans, rate conversion, etc.
- It has a wide range of cryptocurrencies to lend/borrow from.
- Aave has competitive pricing.
The main purpose of the AAVE token is governance. Stakeholders can vote on what changes are needed and whether new digital currencies should be added to the lending and borrowing platform. To vote, you must have AAVE codes or stkAAVE (Staked AAVE) codes. The tokens themselves represent a financial stake in AAVE.