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AAVE Review: What We Like and Don't Like

Our comprehensive Aave review looks at their interest rates, usability, security, reputation and fees. We break down every element of the service, so that you can make an informed decision.

  • Aave
  • Dean Fankhauser
    By
  • Posted
  • Read Time7 minutes
  • Our score

Aave review

Our take

3.5

With the advent of Decentralized Finance (DeFi), many new platforms have joined the digital space. Sorting the genuine ones out from the less than reputable ones can prove a significant problem for consumers. 

Adding to the complication is the controversy swirling around some of these platforms. Separating fact from fiction can prove a tedious process. What's more, fork or clone sites further muddy the waters. 

What to do? Fortunately, there are a handful of excellent platforms out there that you can trust. Aave is one of those sites. Not only is this company taking DeFi to the next level, but it's bringing greater intuitiveness and ease of use to the market. Keep reading to find out how.

How Aave Started

In Finnish, the term aave means ghost. Why did the team at Aave choose this name to signify their company's vision? Because it refers to an open, transparent infrastructure for DeFi.

Who comprises the Aave team? An eclectic admixture of creative directors, tech evangelists, software engineers, risk managers, creative directors, and other professionals from diverse fields and areas of expertise.

Heading up this fascinating team are Stani Kulechov, CEO, and Lazaro Gustave, COO, who both boast backgrounds at ETHLend. As you'll soon see, ETHLend has had a significant impact on their current protocol. 

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What Is Aave?

Let's start with a simple question. What exactly is Aave? Essentially, Aave is a blockchain-based platform that runs a non-custodial money market. This money market involves borrowers and lenders or depositors. 

Where does the network receive liquidity? From depositors. These depositors, in turn, permit borrowers to take out loans, relying on an undercollateralized or overcollateralized approach. 

If this concept sounds familiar to you, it's with good reason. The same approach informs the peer-to-peer decentralized lending protocol of ETHLend, where Kulechov and Gustave got their starts. 

Aave provides lending opportunities for its customers by creating a market. It also permits similar products to be constructed to support its platform. The Ethereum blockchain powers them.

How does Aave achieve this? The company utilizes pools where depositors can place their cryptocurrency. These pools get divided by the cryptocurrency deposited. 

At this point, depositors transform into lenders, and they start earning interest on the money lent to borrowers. By relying on a pool approach rather than individual depositors to power loans, Aave avoids the models used by other decentralized platforms, such as the p2p.

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Which Cryptos Does Aave Support?

At this point, you may be wondering which cryptos Aave supports? They include:

Because you're reading this article, we can assume you know a bit about the incredible changes cryptocurrencies have introduced to the financial world. Along with blockchain technology, crypto and DeFi are disrupting the economy in many fundamental ways. 

For these reasons, it's time for you to consider experimenting with platforms such as Aave. It's a fantastic way to explore the world of altcoins while earning interest on your investments. But what must you do to get started?

How to Get Started With Aave

Before getting started with Aave, you'll need to make some fundamental decisions. For one, you must choose if you want to lend your coins to earn interest or take out a loan.

Whether you're lending or borrowing, you'll then need to set up a web 3.0 wallet with a company such as:

  • Ledger

  • MyEtherWallet

  • Coinbase wallet

  • Metamask

After you've chosen a brand and set up your web 3.0 wallet, connect your wallet to Aave. What's the best way to do this? It will ultimately depend on the site you've chosen.

That said, we'll walk you through the process with one of the more popular wallets, Metamask. That way, you'll have a better overall concept of how the process works.

Setting Up Your Web 3.0 Wallet

Metamask is a web 3.0 wallet Chrome extension. As a result, you'll need to use it in one of two browsers, Chrome or Firefox. As you go through the process, bear in mind that there are many fake wallets out there. Hackers and scammers have designed these fake wallets for the sole purpose of stealing your coins.

So, it's of the utmost importance that you verify your wallet download as official and valid. Once you've downloaded the extension from the official website, activate your account. You'll do this by creating an account and a backup with your backup phrase. 

From there, use your generated Ethereum wallet to connect your existing Ethereum wallet using a private key. You can also connect your Coinbase wallet this way. Once you've done this, transfer Ethereum funds into your chosen wallet.

Whether you work in Metamask, MyEtherWallet, Ledger, or something else, once you've safely and securely connected your wallet, it's time to engage with the Aave Crypto community.

Lending and Earning Interest with Aave

After you've set up your wallets and funded them, go to the Aave app and connect your supported wallets. Then, choose your preferred market.

How do you access deposits in Aave? By heading over to the "Deposit" section where you'll find a list of supported cryptos. Use this list to choose your preferred coin and the amount you'd like to deposit. 

Not sure which currency to select? Aave makes it easy to research what's best for your wallet. You'll notice as you peruse the list that behind each currency is an estimation of annual interest. 

As you're doing this market research, bear in mind that the interests aren't fixed. Why? Because these percentages are variable, depending on the utilization rate and the borrowing rate.

When the utilization rate goes higher, depositors see a higher yield.

As a depositor, you'll also receive access to a share of the fees from flash loans. These fees come in at a rate of 0.063 percent of the flash loan volume.

What are flash loans? These are loans taken by Aave developers to build smart contracts. They're not collateralized, and the contracts must cater towards loans. 

What happens to the proceeds from flash loans? They get utilized to repay the loan with interest.

How do users access these loans? Through applications such as Collateral Swap or Defi Saver.

What else do you need to know about lending through Aave? The platform has a token that's interest-based. Known as the aToken is has a ratio of 1:1 on deposited tokens. 

Deposits don't attract a cap on the deposited amount. But depositing small amounts could backfire. Why? Because these transactions could end up costing you more than the earnings and rewards you'll receive. 

Borrowing From Aave

When borrowing from Aave, go to the "Borrow" section of the app and select the crypto type and amount. Then, provide collateral for the loan by depositing an asset. The value of the collateral that you stake will directly impact the amount you're authorized to borrow.

What else can influence the final loan amount? Other factors that may sway the figure include the available liquidity of the asset you want to borrow. Before completing the process, Aave will also prompt you to select a variable or stable rate.

Aave's variable rate is calculated based on current supply and demand rates. As for the platform's stable rate? This is a short-term fixed-rate that comes with the chance to realign in the future based on market changes. 

Aave Crypto 

Aave relies on a native currency known as the LEND. It also sometimes goes by its older name, ETHLend. How many total tokens are in the LEND supply? Nearly 1.3 billion.

How does the LEND token work? Developed using Ethereum's ERC-20 standards, Aave's native coin is utilized to receive discounts on transaction fees. LEND investors also enjoy a share of the platform's transaction fees for engaging in and securing the platform. 

What can you exchange LEND tokens for? You can change them for the platform's second version coins, the AAVE. The AAVE has a ratio of 100:1 (Lend:AAVE). You can stake AAVE in the Safety Module to start receiving Safety rewards. 

What does the Safety Module do? It mitigates the risks associated with shortfall events. If a shortfall occurs, 30 percent of the staked tokens get dedicated to covering the deficit. 

Where are Safety rewards capped? At 400 AAve's per day. Check out our loan calculators now to get a better sense of your current assets and what you could earn with Aave.

Cryptocurrency is changing the way we do business and handle finances. An example of this remains the work being done at Aave to ensure people have the opportunity to earn interest on their deposits.

Aave's unique take on the process, inspired by ETHLend, relies on lending pools and a Safety Module to ensure customer safety and peace of mind. Native tokens such as the LEND and AAVE crypto support these transactions, making the process more streamlined and safer.

Are you interested in learning more about how DeFi and CeFi are reshaping the financial industry? Browse our latest comparisons now.

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