How to Use AAVE in 2024 – Complete Guide
Many people wonder how to use decentralized Finance (DeFi) products, which have brought new life to crypto and traditional finance markets. Numerous ambitious lending protocols like Aave (AAVE) have sparked a hope that DeFi might eventually have the same omnipresence as traditional finance, which would be a godsend to the millions of unbanked people worldwide.
DeFi allows millions of average citizens to access crypto wallets, which function as personal bank accounts, and grants permissionless access to all basic and not-so-basic programmable financial tools. In the near future, anyone should be able to use their assets in financial applications, like loans and interest yields. Aave brings such a vision closer to reality.
Brief History Of Aave
Before it was named Aave, the protocol was under the name ETHLend. Envisioned by developer Stanley Kulechov, ETHlend intended to connect lenders and borrowers with matching loan requests. When ETHlend needed reimagining to stay afloat, it was rebranded as Aave in 2020. It used liquidity pools and algorithmic determination of interest rates, giving birth to what would become the giant of DeFi today.
Aave’s Rise
Aave has risen among cryptocurrency enthusiasts as a promising application for the next generation of DeFi. In addition to lending, staking, and yield protocols in regular DeFi applications, Aave caught the crypto world’s attention by introducing flash loans, smart contract loans you can get with no collateral you have to pay back within a minute.
On the surface, one would wonder how you can get a loan for nothing and the point of paying the loan back in such a strict time frame. With DeFi being run by smart contracts instead of centralized entities, a world of possibilities opens up. Those few seconds could mean everything when attempting to. You’ll be able to execute strategies that traditional finance wouldn’t normally consider, thus making things like flash loans have usefulness that traditional finance wouldn’t be able to pull out.
Aave’s Notable Features
- AAVE Token: Like the Compound protocol, Aave has its token. The AAVE token, a 1:1 ratio from the Aave liquidity pool, generates yield when you make enough deposits on a derivative token.
- Switching Rates: Most DeFi protocols only have variable rates because of the volatility of the crypto market. The valuation of most coins is continuously oscillating, and these qualities are also reflected when making loans. With Aave, you can choose to fix the interest rate rather than keep a varying one, which adds a whole other dimension to lending.
- Flash Loans: Flash loans have brought Aave’s attention to the crypto world, which distinguishes the platform from other DeFi protocols. Here, you can use smart contracts to execute a loan, which you must repay in seconds if you’re operating with market mechanics that happen at a moment’s notice.
Before getting started, you’ll need to connect a wallet to Aave in order to use any of its features. Like many other DeFi applications, a MetaMask wallet would suffice, but you can use other wallets like the Ledger hardware wallet, Coinbase wallet, or others.
Depositing Funds on Aave
To borrow, swap, stake, or have any voting power in Aave’s governance, you must deposit some crypto into Aave. To do so, click on the deposit tab at the top of the Aave protocol once connected with your wallet. From here, it will detect which cryptocurrencies you have in your account.
How To Stake Tokens On Aave
To stake Aave tokens, ensure you have Aave tokens in your wallet, which you can get by using a decentralized exchange like Uniswap. Once you have the desired amount, type in the amount you want to stake in the box and press the button. The right side shows you the Aave per month that you would have earned through staking. It also shows the Cooldown period, which refers to receiving your tokens after trying to take them out of staking.
This time frame allows the network to easily manage any tokens that are removed without affecting the network’s integrity. Next, you will receive the annual percentage yield (APY) while staking. The slashing indicates how much stake you can lose in the extremely rare event of the network becoming compromised and having to slash away tokens to keep its integrity.
How To Borrow On Aave
Depositing tokens allow you to borrow tokens on Aave. On the borrowing page, you will find a list of tokens you can borrow, how much you can borrow, and the variable and stable APY. If you click on one of the coins, you will be directed to the next page with information about your chosen token. The utilization rate tells you the amount the selected asset is being borrowed compared to the sum available for borrowing.
The higher the number is, the more the asset is being borrowed and the higher the interest rate the borrower has to pay. The available liquidity is how much you can borrow, and the asset price is the current market price of your chosen token. The option for stable or variable rates is a feature that Aave became known for.
At the cost of paying more for your borrowed asset, you can stabilize the APY, making the loan rate predictable at a much higher interest rate cost. This is a handy option if you believe that market circumstances will change. Otherwise, you can use a variable APY, much like most other decentralized finance applications, if you think stabilization will be costlier. After this, you can visit your dashboard and see how your assets are doing.
Swaps on Aave
Much like decentralized exchanges, Aave allows swaps in a limited capacity. You can select the asset you want to swap, the rate the swap will cost, the slippage (the price change that you will allow and the swap will still execute), and finally, approve the transaction. Make sure to have enough of the intended token to execute your swap.
Executing Flash Loans
As of right now, flash loans require extensive smart contract programming, so they are inaccessible to the average DeFi user. Maybe a day will come when flash loans can be done at a click of a button without the need for a user to run them on lines of code. Before, creating NFTs could only be done by someone who knew how to develop on Solidity.
Now, anyone can take a picture of a toilet, create an NFT with it, and attempt to auction it on OpenSea. If you know how to code and are raring to make eye-popping DeFi profits, numerous tutorials online have already sprung up for you to take advantage of DeFi’s lucrative potential. Otherwise, you might have to learn an entire profession and skills like programming to access smart contracts until they are more accessible to the average person.
Even though they are difficult to access, flash loans have still been the talk of the town in DeFi. When lucrative trends and trades can be seen and made in the blink of an eye, exchanging assets without collateral at lightning speed is a valuable tool for traders who have already sunk their teeth deep into decentralized finance.
Conclusion
Aave was rebranded in 2020 and has made a name for itself with its impressive features. At the time of writing, Aave circulates a hefty amount in the DeFi space, with over USD 20 billion worth of assets in Aave. As it continues to climb the ranks in DeFi protocols and cement its usefulness in the crypto space, we could potentially discuss Aave as one of the most innovative decentralized finance protocols of the current dApp landscape.