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What Is Aave Crypto and Is It a Good Investment?

What Is Aave Crypto and Is It a Good Investment?
What Is Aave Crypto and Is It a Good Investment?

What Is Aave Crypto and Is It a Good Investment?

Aave is a decentralized money lending protocol that has recently gained popularity after releasing a working DeFi solution. In this article, we take a look at its special features, some of its major development milestones, and share predictions on where it could go in the near future.

What is a ghost?

Aave is a decentralized smart contract system that runs on the Ethereum blockchain. It allows users to create money markets and earn interest by reliably borrowing and lending cryptocurrencies.

The Aave ecosystem consists of the Aave protocol, AAVE holders, liquidity providers, Ethereum and DeFi wallet partners, developers and projects promoting Aave. This product range features the original AAVE code.

Ghost Protocol

The main integrated part of the Aave system is the open source liquidity protocol launched on January 8, 2020. It was created with the aim of freeing up capital from smart contracts, improving capital flow into the DeFi ecosystem and enabling the community to take decisions. Key features of Aave Protocol 2.0 include flash loans, aTokens, credit delegation, fixed rate deposits, interest rate swaps, and administration. Let’s look at each of them in detail.

How does Spirit work?

The Aave protocol allows users to earn interest on their digital assets and borrow crypto tokens in the form of fixed rate loans, variable rate loans, and flash loans. It offers more than 15 cryptocurrencies for borrowing and lending, including DAI, ETH, LINK, USDT and AAVE.

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Lenders provide liquidity by depositing funds which are pooled into liquidity pools. Each pool sets aside funds as reserves to hedge against volatility. To avoid potential liquidity issues, Aave has set up liquidity pools in Balancer and Uniswap so that lenders can repay their funds at any time.

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Like other Ethereum-based DeFi lending systems, Aave supports the concept of overcollateralized lending. This means that in order to borrow money, users must first secure collateral that exceeds the loan amount by 50-75%. This protects the protocol’s assets in case users are unable to repay their loans. It is important for the borrower to maintain a collateral relationship. Otherwise, their collateral will automatically be sold or liquidated to repay the loan. The interest earned on the investment offsets the interest earned on the loans.

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aToken

Whether the deposits are for loans or borrowing, users receive interest-earning tokens in return that are pegged 1:1 to the value of the underlying asset. For example, if you deposit ETH, you will get one ETH token. Such tokens can be stored, transferred and traded freely. This exchange mechanism allows borrowers to access various cryptocurrencies without owning them.

Lenders have the ability to earn ongoing interest on deposited funds. Interest rates depend on the currency, loan supply, loan demand and occupancy rate. Additionally, aToken holders receive a percentage of payments collected through the Aaven Flash Loans mechanism.

Flash loans

Aaven makes it unique that customers can borrow quickly without collateral, primarily through a developer quick loan. The quick loan is granted on the condition that the principal must be repaid in a single Ethereum transaction. If the loan is not returned to the pool on time, the transaction will be cancelled. This ensures the safety of the funds in the fund and nobody takes the risk. The instant loan requires a 0.09% down payment and completes in 13 seconds.

Regardless of the purpose, the refund mechanism is protected by a code, which contributes to the overall security of the system. This feature also allows users to borrow and lend money without depending on a third party.

Ghost vs. Compound: Similarities and Differences

Aave and Compound Finance are the two largest DeFi lending platforms (and biggest competitors) since the launch of the lending protocol. At first glance, they look very similar.

Here’s what Ghost and Compound have in common:

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Despite their similarities, they differ in some important points. Among these differences are the following:

Overall, Aaven’s unique features and higher payout options make it a more profitable solution than Compound.

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