What currency is the most cost-effective for aave lending (the principle of aave lending)
What currency is the most cost-effective for borrowing and lending aave What currency is the most cost-effective for borrowing and lending aave
aave is a decentralized self-organizing open financial protocol, which allows users to borrow Cryptocurrency and Fiat money by mortgaging digital assets at any given time In the past few months, AAVE has successfully expanded to multiple markets and achieved tremendous success. In recent weeks, it has also attracted a large number of new investors to enter this field, making the company one of the largest DeFi projects in the market. However, as more and more investors join the industry, the growth rate of the project has also been affected. After the recent round of financing, AAVE is raising approximately $100 million in new funds. If this scale continues to expand, it will soon be used to support other encrypted tokens (such as LINK, LEND, AAVE, MKR). According to the platform’s data, the current AAVE lending rate has dropped from 0.004% on May 13th to 0.01% In the next two years, AAVE plans to lock in all of its earnings within the total value of the agreement, in order to maximize returns while maintaining its capital efficiency. Therefore, according to its website, the current annual return on deposits on the platform is 18.8%. If this portion of the yield remains unchanged in the future, the loan interest will be reduced to some extent In addition, according to the platform, the total loan amount of the aave agreement is approximately 100000 ETHs, accounting for over 10% of the entire market. In contrast, Compound has a loan value of 60%, while Maker has only 20% Due to these reasons, we can determine which currencies are more suitable for aave to borrow as collateral at the current price. For most DeFi users, choosing a more mainstream asset is very effective because they can trade on different exchanges. However, for some crypto assets with small market value, this situation may not be ideal: other currencies such as Bitcoin and Ethereum have low risk; But for aave, the prices of these coins are relatively stable and have high investment returns At the time of writing, aave’s lockdown reached $3.57 billion, far higher than other mainstream DeFi assets, and also reached a new high after this round of financing
The Principle of AAVE Lending
In our understanding of AAVE lending, AAVE is a decentralized loan market. Users can borrow assets and earn interest by mortgaging their funds. Borrowers can receive deposit interest rates and floating interest rates. When they use their platform to provide services, it generates income (or if there is a run on), and borrowers receive corresponding interest (or fees). The borrower’s principal will be liquidated. Therefore, AAVE obtained the loan by paying interest to the borrower in exchange for interest According to AAVE community member @ TheLao, “lenders will be able to repay their debts and then withdraw other funds from the platform.” This means that users can deposit any digital assets into the AAVE loan pool as collateral. Users can also lock their tokens into the AAVE agreement as a deposit, which can provide additional protection for the loan they choose. “This is a currency in the form of a Stablecoin, linked to the US dollar”. This is especially true for those who cannot fully redeem Cryptocurrency. However, with the development of DeFi applications, users will also increasingly participate: “You need to add liquidity to your balance sheet,” which is very necessary. However, “you must invest your capital in something.”
So the question arises: why not put it in your own wallet?
? Because there is no security risk with this money? In order to solve this problem, users should first store the Cryptocurrency in their selected wallet, rather than put it in the exchange. Once cleared, these encrypted assets will be blacklisted Therefore, even the encrypted assets deposited cannot be used for further use and will not be used for future loan activities as they are now. This makes them an ‘unmanaged’ asset Due to their indivisibility and ownership characteristics, these assets can be created by anyone and can be traded, transferred, or sold at any time. But at the same time, these assets may not necessarily be real. On the contrary, if users want to purchase assets, they need to deposit the encrypted assets into a bank account
This is why a new loan market is introduced, allowing borrowers to move their Cryptocurrency between different protocols – for example, Compound Although some agreements in the current market may have begun to leverage new market structures and technological advantages to reduce costs. However, these protocols usually do not always adopt the same mode and functionality. In fact, this method is not truly innovative design, but is built on a wider range of application fields. For example, with platforms like MakerDAO, it can not only improve the borrower’s ability but also reduce losses Therefore, borrowers can not only borrow from their platform and charge a fixed rate of return, but also obtain income through various means. For example, if you hold ETH, you can borrow $100000 of DAI on the platform at an annualized interest rate of 300%; If you hold 100 USDT (worth 200 cents) Stablecoin (such as DAI); If you have 300000 encrypted assets equivalent to WBTC, you can immediately lend $10 million.
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