AAVE DeFi Tutorial: Crypto Lending and Borrowing

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October 13, 2020

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Add: Veronica Zubrii

Being an advanced DeFi lending protocol like QDAO, AAVE enables lending and borrowing of various cryptocurrencies at stable and variable interest rates. Aside from that, it leverages uncollateralized loans, rate switching, flash loans and other unique features.

The growing demand for crypto loans paves the way for the introduction of advanced protocols and AAVE is one of them. Being somewhat similar to the Compound project, AAVE is a new lending application that allows users to lend and borrow a wide array of cryptocurrencies with both stable and variable interest rates. 

Originally, the project was released in 2017 under the name of ETHLend; the ICO raised $600,000 in Ether after selling 1 billion LEND tokens. In September 2018, it was rebranded with the aim of adding new features. Not for nothing, it is called ‘AAVE’ – this is the Finnish word for “ghost”, which denotes the transparency and openness of its DeFi infrastructure. 

It leverages flash loans without any collateral, borrowed from the AAVE reserve pools in a single transaction. The platform gives users access to the open-source, non-custodial protocol for creating markets on the Ethereum blockchain. Currently, there are two markets available (AAVE and Uniswap) with two more markets coming soon (Set market and Next market). So far, 19 cryptocurrencies are supported (DAI, ETH, LEND, BAT, ENJ, REN, KNC and others), including stablecoins, such as USDC, USDT, BUSD and TUSD. Probably, USDQ will be added to this list in the future. 

What makes AAVE an innovative platform is their set of convenient features:

  • Flash loans. Users can borrow a large amount of cryptocurrency without collateral at all. Instead, the loans rely on the time of repayment – they should be paid back within the same Ethereum block. Otherwise, the transaction fails.
  • Flexible rates. Users can swap between stable and variable interest rates with the help of the Swap Rate feature and take up to x10 the leverage position in a deal. 
  • Credit delegation. Enabling peer-to-peer lending, AAVE lets users set up credit lines that can be drawn down by other users – delegators set the repayment terms and the amount of capital to be charged against interest rates. 

Step-By-Step Guide To Borrowing and Lending on the AAVE Platform

To start with, open the AAVE website. Here, you will be able to select from the markets available (AAVE, Uniswap + Set and Next coming soon):

Below, you can see the overall protocol market size and the list of supported cryptocurrencies, with market size and deposit/borrow rates for each of them. Both stable and current/average variable rates are shown, which facilitate making an informed decision and maximizing earnings.

Upon selecting the market, the user proceeds to their choice of crypto wallet. AAVE supports browser wallets like MetaMask and other hardware, mobile and desktop wallets (Ledger, Coinbase, Torus, Fortmatic and others):

Choose one of the options to connect your wallet.

How to make a deposit 

In order to lend your cryptocurrency, proceed to the Dashboard → Deposit. Check the list of cryptocurrencies (the balance will be shown automatically after connecting the wallet). You will see the APY for each cryptocurrency.

Click on ‘Details’ to check the deposit features (utilization rate, liquidity amount, asset price, deposit current and 30-day average APY), maximum LTV, liquidation threshold, and liquidation penalty. The APY historical rates are displayed in the graphic chart below. 

Click on ‘Deposit’ and enter the amount of cryptocurrency you want to loan or choose a percentage of your wallet (25-100%). The maximum limits will be displayed below the field. Click on ‘Continue’.

Once you proceed to the next step, click on ‘Approve’ to allow the platform to access your wallet.

Next, you should allow the app to spend your transaction fee (those can be tracked in ETH Gas Station). Click on ‘Edit’ to change the speed of transaction and corresponding fee. Confirm the transaction.

Also, you can edit Gas fees in the Deposit section:

You can check transaction details:

Once the transaction is finished and your deposit goes to the lending pool, you will get notified. It might take several minutes.

How to borrow

In order to borrow cryptocurrency, proceed to Dashboard → Borrow. Check the list of available cryptocurrencies, amount of crypto available and APR rates (stable and variable). 

Click on ‘Details’ to see more transaction info (utilization rate, available liquidity, asset price, stable and variable APR). APR historical rates will be shown in the graph:

Choose the amount of crypto to borrow by entering it manually or by choosing the percentage of risk. The maximum available amount for borrowing will be shown below. Assess the options before choosing the rate! 

Click on ‘Continue’ and choose the rate. The variable rate is lower but it’s associated with risks since it changes every second, depending on the Demand/Supply in the market. 

Approve the transaction details and click on ‘Submit’.

That’s it! The borrowed crypto will appear in your wallet shortly.

If you did not find the necessary assets for Deposit/Borrowing, you can switch the market by clicking the button in the upper right corner:

AAVE offers an intuitive and simple interface that makes transactions quick and simple. But before you lend/borrow crypto, be mindful that the variable interest rates are subject to constant change. Also, note that each asset has a varied collateral requirement. Stablecoins provide higher loan-to-value, due to their price stability. Want to be the first to hear QDAO DeFi news and updates? Visit our website and stay in touch with us on social media: Twitter, Facebook, Telegram, and LINE (for the Japanese-speaking community).