What is Aave?
Aave is a lending protocol on Ethereum that lets you earn interest on your assets. The interest comes from other people that use the protocol to borrow crypto. Aave is open-source and non-custodial.
Aave V2 launched on 3rd December 2020.
Why does it matter?
Aave lets you put your crypto assets to work for you. It's an easy way to earn interest on crypto while enabling others to borrow. Unlike traditional finance, it's accessible globally, open 24/7
How can I use Aave with Argent?
- Open Argent
- Tap Invest
- Tap Aave V2
- Tap on the investment you are interested in - you can see the current rates here
- You will be redirected to the menu where you can follow on-screen instructions to Buy, Sell or Send your Aave assets.
How does it work?
Aave describe themselves as a "decentralized non-custodial money market protocol". Depositors (such as an Argent user) provide liquidity to a pool. In return they earn interest. When you deposit you receive an aToken. These are pegged 1:1 with the underlying asset and directly accrue interest in your wallet. You can store these tokens in Argent, bring them to Argent from another wallet, or send them externally.
Assets in a pool can be borrowed by other people, who put up collateral to borrow. The collateral comes in the form of other cryptoassets. (Why do borrowers use one cryptoasset to borrow another cryptoasset? People may want to keep their exposure to one asset, like ETH, that they hope will go up in value, while borrowing a stablecoin, like DAI, they they can use to trade with before paying it back).
The interest rates
As soon as you deposit you will start earning interest. This interest compounds every Ethereum block (roughly every 10 seconds). The rates fluctuate depending on demand for assets from borrowers.
Where can I go to learn more?
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Watch Aave's Founder, Stani, speaking at Ethereal Summit 2020
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You can read the full overview of Aave in their whitepaper.
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For the more technical, check out their Github
Risks for Aave
Aave is an early stage crypto project and you participate at your own risk. Key risks include:
- Security: While Aave has been audited by two independent security firms (OpenZeppelin and Trail of Bits), the security of the protocol cannot be guaranteed. You can read the full audits here: OpenZeppelin, Trail of Bits.
- Economic: Aave say: "If one of the supported currencies is compromised, collaterals will be affected, threatening the solvency of the protocol".
Aave have compiled a 'risk framework' that details further the risks they have identified.
Risks for Aave V2
You use Aave at your own risk. Risks include smart contract vulnerabilities and the correct functioning of the protocol's economics. Aave V2 has been audited by MixBytes; CertiK; ConsenSys Diligence; and PeckShield, the first audit in Chinese. Aave is also working with Gauntlet to test its financial infrastructure.
Find out more about DeFi risks here.