Decentralized finance and why it is essential today
Decentralized Finance or DeFi is a breakthrough that has completely revolutionized the traditional and conventional methods of financial services. While the majority of users relied on traditional financial systems such as banks, DeFi introduced a completely different system that took power away from such centralized authorities. The reason? Centralized financial systems came with high commissions and transaction fees, offered an online platform that was not safe or secure, reliance on third parties was huge, and other factors such as privacy, inflation or depression, and other factors made them very unreliable and quite flawed. With the advent of DeFi and blockchain technology, a wide range of financial services such as lending and borrowing, asset management, cryptocurrency exchanges, staking, decentralized applications and more promptly work on blockchain networks such as Ethereum and TRON. These DeFi protocols offer advantages that centralized entities cannot even begin to match: Immutability, interoperability, transparency, programmable smart contracts, self-custody of funds, and a permission-free platform.
One of the DeFi protocols operating on the Ethereum blockchain is Aave – a credit and loan protocol that has gained quite a bit of momentum in the DeFi space. Currently, over $2.33 billion worth of assets are locked in the protocol. Entrepreneurs and business owners looking for a profitable business venture in the DeFi space can brazenly get in by taking advantage of our DeFi protocol development like Aave solutions.
Aave and the trappings – Decoded
The term “Aave” comes from Finnish and means “spirit”, which refers to the transparent character of the protocol. It is an open-source, non-custodial protocol that allows users to perform two main functions: lending and borrowing, for which they can receive both stable and fixed interest in the form of aTokens. In addition, users can also access flash loans through the protocol. Aave also has a governance token – LEND and supports over 20 cryptocurrencies. Now, the developers of the Aave protocol have released a second version of the protocol with additional benefits such as trading of deposited assets, an improved version of flash loans, and flash liquidity, to name a few. Brugu’s Aave-like protocol will maintain all the inner workings of the P2P platform and provide your users with a robust platform for permission-free lending and borrowing.
How does lending and borrowing work in the DeFi protocol as in Aave?
Users who want to deposit or borrow in the protocol can do so by depositing assets in the liquidity pools, for which they can receive interest. These interest rates are not stable, as they depend on the current market conditions. The borrowing rate and the utilization rate are also factors that determine the amount of interest earned. For the number of balances lent, users are provided with the corresponding number of aTokens, which they use to receive ongoing income passively. The amount that can be deposited is not limited, meaning users can deposit as much or as little as they see fit. Lenders can also withdraw the deposited amount at any time and receive the interest earned.
When borrowing, on the other hand, the borrower must first deposit collateral. This collateral must be higher than the number of assets borrowed. Only then can the borrower draw on the liquidity pools and take out an over- or under-collateralized loan. The amount that can be borrowed depends on certain factors – the amount of liquidity available and the value deposited. The loan must be repaid with the same asset that was borrowed. Suppose a user borrows 1 ETH, then he must repay 1 ETH + interest. This interest rate depends on the relationship between supply and demand of the borrowed asset. In the updated version of Aave, users can repay the loans with deposited collateral. In case of non-repayment of the loan or if the value of the collateral falls below the value of the borrowed assets, liquidation is initiated and the liquidators are rewarded.
Flash loans – the well-known functionality of Aave
A popular feature of the Aave protocol that allows users to borrow any amount of assets as an emergency loan without posting collateral. A smart contract is created requesting the flash loan. Once the borrower receives it, he has to repay the borrowed amount with interest and fees within the same Ethereum transaction. If this condition is not met, the loan and all related transactions are considered invalid.
Aave Token – LEND
Formerly known as ETHLend, the LEND token is now being exchanged for AAVE – an ERC-20 token native to the Aave protocol. AAVE offers its holders a whole range of benefits.
- They do not have to pay any fees for borrowing.
- AAVE borrowers receive a discount fee on collateral.
- Borrowers who deposit AAVE as collateral can borrow an additional amount if needed.
- Token holders also have voting rights on governance issues.
Exceptional advantages of our Aave like DeFi Lending protocol.
- Possibility to take out lightning loans
- Change of the interest rate
- A wide range of DeFi collateral – DAI, ETH, BAT, LINK, MANA, MKR, SNX, USDT, USDC, TUSD, USDT, sUSD, BUSD, KNC, LINK,wBTC, ZRX and LEND.
- Use of deposited collateral for loan repayment.
- Highly secure lending and borrowing platform
- Instant processing of transactions
- A very favourable investment source for lenders
Create and launch a DeFi protocol like Aave with Brugu!
The DeFi market has never been more popular. And protocols like Aave and Compound are attracting users and investors. This is the right time to launch a powerful protocol like Aave using our DeFi protocol development solutions. At Brugu, we have assembled a team of accomplished and experienced blockchain engineers and developers who strive to provide services that meet international standards. Our solutions, followed by our round-the-clock support system, will ensure that your project succeeds.