As of January 2020, the DeFi protocol Aave (CRYPTO:AAVE) has been used to borrow and lend more than $25 billion in cryptocurrency. As of 2017, when the Aave tokens were first put on sale, they were worth about $1.76. (adjusted for the 100-to-1 swap that happened last year). As of this writing, they’re worth almost $400. In terms of market value, they now make up the 30th largest cryptocurrency with a value of nearly $5.1 billion.
Maybe interested investors question how the platform and business got so much money so fast. In fact, Aave is a terrific firm because it makes a formerly exclusive technique open to everyone.
Asset Loans: Their Advantages and Disadvantages
A person named Chloe has worked hard to save up $10,000 so that she can buy Ether. But two weeks later, she had a family emergency and had to sell part of her Ether to pay for things. This made her give up on her original financial goals. Take out a personal loan, which banks can extend to make more money, or get a payday loan that is almost always bad. These people don’t run into this problem, though. They just pledge their assets as collateral for a low-interest loan to cover unforeseen needs.
That’s no longer the case, though. When Chloe needs money for her family, she can now put her ETH on platforms like Aave and borrow money. So here it is: It is a loan, but the ETH she uploads is a long-term asset. The loan is repaid in DAI, which has a 1:1 exchange rate with USD. She may then transfer her DAI to a crypto-fiat exchange like Coinbase to cash out her funds.
Those that fund an escrow account like this one may borrow up to 75% of their ETH investment. They can pay as little as 4% interest per year until they pay back the money with their regular income. It’s a terrific offer, and it’s less than most big credit card companies charge for loan interest.
Readers may be wondering what the deal is. This is a good book. You can’t think of anything else. The only thing that might be different is that the rate on loans is variable, which means that it could rise or fall. Using smart contracts on the Aave network usually means that it isn’t very high.
If Chloe doesn’t pay back the loan, the lender will take her ETH tokens. Unlike typical P2P lending, this sort of lending does not include a borrower default premium in the interest rate. A borrower who defaults on a Japanese loan has few options.
No One-trick Pony
Aave has other benefits, too. When investors put their stablecoins in the platform, they can earn much better interest than what they would get from a traditional savings account.
Eugene, a traditional investor, prefers to avoid the volatility of cryptocurrencies by putting his money in a savings account. Aave’s 0.50 percent yearly interest rate is an alternative to his cash. This way, he gets the 4% interest per year (or more) he talked about earlier, less any fees. All of his money is fully backed by it.
Overall, I believe cryptocurrency investors should check out Aave’s services and tokens.
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