What is Aave? A Decentralized Finance Platforn on the Ethereum Blockchain Worth Your Attention
Aave, formerly Ethlend, is a decentralized finance platform similar to Compound Finance. The platform launched on the Ethereum Mainet in January of 2020, and is worth a look. What can an investor gain by supplying liquidity to the platform or taking a collatoralized loan there? Plenty.
What is Aave?
Aave started out as Ethlend in 2017, and rebranded as Aave in 2018. Aave means ghost.
Aave currently has approximately $40 million in collateral on its Mainet smart contract, compared with Compound Finance's $127 million. Users have been increasingly adding liquidity to the platform, which features approximately 16-assets. Like Compound Finance, the interest rates for borrowed assets and supplied assets varies based on supply and demand. Aave offers more digital assets than Compohnd Finance, and offers the ability to diversify into more assets with variable interest rates to generate income.
Since cryptocurrency is so volatile, borrowers would be wise to borrow much less than their maximum limit to avoid margin calls and liquidation. Users of Aave can buy underperforming loans, and a wise borrower would be very cognizant of any loan that is becoming underwater.
Strategies
Decentralized finance is a very new and lucrative industry. Investors can profit handsomely as the price of the asset they have supplied appreciates in two ways. The investor who supplies liquidity will be rewarded with a higher interest rate and generate passive income in "atokens" of that asset type that can be traded. In addition, those who supply collateral and borrow from the platform during bull markets can sell their borrowed "atokens" and make a profit. So, watching the market is very important.
How can a user of Aave or another decentralized finance platform lose? If the borrower's assets fall below the value of the collateral they supplied, there may be margin calls, and other users may buy the underperforming loan. The collateral may be lost if a bear market ensues. In essence, borrowers are making a leveraged bet on a bull or bear market with the chance of full capital loss.
The safest way to take advantage of this platform is to lend liquidity to multiple pools for interest income. The interest rates are variable, so a combination of stable coins and digital risk assets can be used to generate regular income. I would recommend loaning the program 5-assets including a Stablecoin position such as DAI and using the passive income stream to further diversify my holdings.
Visit Aave on an Ethereum Wallet at the link below:
https://app.aave.com/home
Originally published in my Publish0x account I own at:
Also published in my Hive.io account at anarchy999 and my Steemit account at anarchy999.
Sources:
Picture from Pixabay.
https://defipulse.com/aave
https://compound.finance/
