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Getting Started With AAVE: Earn, Borrow & More With This DeFi Platform

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Are you looking for a way to earn interest on your crypto savings or borrow against your assets? That’s what the Ethereum-based AAVE platform is all about.

In this article we’re going to do a brief overview of AAVE and what you can do with it. We’re also going to walk you through how to get started using it. Lastly, we’ll go over some of the behind the scenes technical details of the platform including the risks you’ll need to consider before signing up.

What is AAVE?

AAVE is an open-source DeFi platform that allows users to earn interest on deposits and borrow against them. There are no KYC checks, geographic restrictions or other limitations on who can join. Currently, the platform boasts of having over $3 billion in deposits.

One important difference with AAVE and other competitors is that this platform is non-custodial. In short, that means your deposits are always in your control. This is good because it means no single person or corporation can restrict your access to your deposits.

AAVE: open source and non-custodial liquidity protocol
AAVE: open source and non-custodial liquidity protocol

If the Swiss company behind AAVE were to disappear tomorrow, your funds would still be available. Non-custodial platforms do have some downsides though. If your funds are lost for any reason, AAVE can’t help you recover them. If there is a successful hack and funds are stolen, non-custodial platforms typically don’t have insurance. AAVE does offer a sort of pseudo insurance which we will get to later.

AAVE is built on Ethereum. That means it’s based on one of the most battle-proven crypto networks out there. However, the platform currently only supports a handful of ERC-20 tokens for earning interest and borrowing against.

That means popular non-Ethereum assets like Litecoin and XMR aren’t supported. AAVE supports most ERC-20 stablecoins (USDT, USDC, TUSD, DAI to name a few) as well as several other popular Ethereum-based tokens such as Basic Attention Token or BAT, 0x Coin or ZRX, and Maker or MKR. The platform even indirectly supports bitcoin via the Ethereum-based Wrapped Bitcoin or WBTC.

Making Your First Deposit With AAVE

Getting started with AAVE is pretty simple, but could be a little daunting if you are new to crypto apps. To begin, visit AAVE’s official website – AAVE.com. Next, click on Enter app which will bring you to a version select screen. Unless you have a reason to, go ahead and choose the latest version. At publishing time, the latest is version 2.

Next, you can decide whether you’d like to associate a wallet so you can deposit and withdraw through it, or you can continue without associating a specific wallet. Currently, AAVE supports browser wallets like MetaMask, hardware wallets like the Ledger, and even popular custodial wallets like Coinbase. Under normal circumstances and with a proper security setup, unlocking a wallet with AAVE won’t expose you to much direct risk.

Connect your wallet
Connect your wallet

Once you are logged in, the next step is to make your first deposit so you can either start earning interest or setup the collateral to take out a loan. On the top menu you can choose the deposit tab. This will lead you to the deposit screen which will show you what the current interest rates are in annual percentage yield, or APY.

Interest rates change all the time, but during our investigation we found that stablecoins had the highest interest rates by far. For example, USDC and TUSD were both hovering around 12%. ETH, on the other hand, was trailing behind at just under 1%. Some assets even had 0% interest rates. Comparing this to other DeFi services, 12% interest for stablecoins is very competitive.

Asset Deposit
Asset Deposit

Interest rates for borrowing were also incredibly diverse. During our investigation, we found interest rates ranging from 0.16% for UNI all the way up to 25.44% for USDC, variable APR. Just as with deposits, these rates will change all the time depending on market conditions. AAVE also allows user to choose (and switch back and forth between) variable and stable APR’s. Currently, the stable APR options were even higher, with USDC coming in at a whopping 30.44%. Not all assets had a stable APR option.

AAVE explains the difference between stable and variable rates on their official website with the following:

The stable rate, as its name indicates, will remain pretty stable and its the best option to plan how much interest you will have to pay. The variable rate will change over the time and could be the optimal rate depending on market conditions. You can switch between the stable and variable rate at any time through your dashboard.

Regardless of this being a crypto loan or a traditional loan, a 25.44% to 30.44% interest rate is quite high. In fact, it’s on par with most high-interest credit cards and short term traditional finance loans. It’s important to remember, however, that the crypto economy is currently experiencing a bull market at press time. This will definitely influence interest rates both on the borrowing and lending sides. Unfortunately, AAVE doesn’t seem to populate any data under it’s historical rates section for us to compare to previous time periods.

One final thing to remember when borrowing with AAVE is that the company behind it does collect an origination fee with each loan. Specifically, the groups advises that “a 0.00001% of the loan amount is collected on loan origination”.

The AAVE Token and Staking Rewards

Another way to earn with AAVE is by owning and staking the platform’s native asset. Owners of the AAVE asset can deposit them into what the platform calls their “safety module”. The safety module is used “as a mitigation tool in case of a shortfall event”. In simple terms, if something bad happens to the market where depositors could lose some or all of their deposits, the contents of the safety module can be used to repay depositors.

As compensation for taking on the risk, deposits made into the safety module will earn a regular return called a “safety incentive”. According to stakingrewards.com, the safety incentive rate is 4.51% at press time. At current prices that would mean $0.75 per month income, per AAVE staked.

Stake your AAVE tokens
Stake your AAVE tokens

The AAVE asset has seen sharp price increases since it’s introduction from $20 in November 2020 to the current price of over $180 in January 2021.

Advanced Features of AAVE

One thing AAVE offers that some other DeFi platforms don’t is the ability to tokenize and trade or sell your interest-earning deposit directly. This works through a process called tokenization.

According to the white paper, deposits are converted into a “corresponding amount of derivative tokens” that “map 1:1 [to] the underlying assets”. These derivative tokens are called aTokens. Depositors can choose to either redeem their interest-earning aTokens for their original asset plus interest, or they can directly sell or trade aTokens on any market that supports them.

Another feature that will interest developers is what the group calls Flash Loans. These are micro-term loans that last only the length of a single Ethereum block. They allow smart contracts to take out loans without putting up collateral as long as the loan is returned with the one block window. You can read more about Flash Loans here.

Balancing the Risks Versus the Rewards

AAVE has a lot of features to offer both those seeking loans and interest income. The platform is also wide open to anyone and has zero restrictions on who can join. However, as with all DeFi platforms and apps, participating in AAVE isn’t risk-free. The main potential risks with using AAVE is that funds could be lost due to a hack, a major black swan market event, or a technical glitch stemming from smart contracts.

So far none of these seem to have happened. What’s more, the platform does have it’s safety module program that encourages individuals to essentially insure at least some assets against loss. In the end, you’ll need to carefully weigh both the opportunities and risks yourself.

Is AAVE a solid way to earn and borrow, or is it too risky? Let us know your thoughts in the comments below.

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Source: https://blockonomi.com/aave-guide/

Blockchain

Opimas estimates that over US$190 billion worth of Bitcoin is currently at risk due to subpar safekeeping

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May 2021. Safekeeping of cryptocurrencies presents a challenge for institutions holding cryptocurrencies on their clients’ behalf. Cryptocurrency transactions are irreversible and anyone with full access to a wallet’s private key controls the cryptocurrencies that reside within it. Frighteningly, a number of institutional participants and even some large cryptocurrency exchanges rely on subpar custody approaches, leading Opimas to estimate that over US$190 billion worth of Bitcoin is currently at risk due to subpar safekeeping.

Luckily, a number of companies have emerged to address this problem. A new research report from Opimas—Crypto Custody: No More Excuses, authored by analysts Suzannah Balluffi and Anne-Laure Foubert—looks at the landscape of cryptocurrency custody-enabling technology providers and institutional-grade cryptocurrency custodians as well as the size of the market for cryptocurrency custody and brokerage services.

Some key findings in the report include:

Many of even the largest holders of Bitcoin and other digital assets continue to rely on storage devices meant for individual investors. Although some of these self-custody devices and wallets are secure and reputable, the operational risk posed by this approach is significant for institutional investors. Furthermore, a chunk of institutionals’ cryptocurrency holdings sit in hot wallets on exchanges. In total, about 22% of institutional cryptocurrency holdings are safeguarded in these relatively risky manners (Figure 1).

Figure 1. CUSTODY METHODS UTILIZED BY INSTITUTIONAL INVESTORS 

 

Source: Opimas analysis.

There are no more excuses for lackadaisical safekeeping – institutions can now choose from several reputable cryptocurrency custody-enabling technology providers and institutional-grade cryptocurrency custodians. Yet no custody solution is equal – there is still no best practice when it comes to security and governance relating to private keys. For example, some providers may rely on time-tested Hardware Security Modules (HSMs), while others use a newer technology known as Multi-Party Computation (MPC) – see Figure 2.

Figure 2. A COMPARISON OF HSM AND MPC TECHNOLOGY PROVIDERS

Source: Ledger, Fireblocks, Opimas analysis.

Some cryptocurrency custodians have followed in the footsteps of traditional capital markets by adding prime brokerage services to their offerings, including trading and settlement, lending, margin finance, staking, reporting, and capital introduction services. Opimas estimates that the current annual revenues generated by the institutional crypto brokerage and custody market are roughly US$2 billion and will grow to nearly US$8 billion by 2026 – a sizeable portion of this coming from brokerage services (Figure 3).

FIGURE 3. THE MARKET FOR CRYPTO CUSTODY & PRIME BROKERAGE SERVICES IS GROWING 

Source:  Opimas analysis. 

  • Regulations surrounding institutions’ ability to store cryptocurrency have become clearer (and in some cases more favorable) in numerous jurisdictions. Notably, the Office of the Comptroller of the Currency (OCC) ruling in the US has allowed banks to store cryptocurrencies for their customers. This regulatory clarity has led a number of financial institutions around the world to provide trading and custody for digital assets. With the advances in brokerage and custody solutions, Opimas expects institutional cryptocurrency holdings to grow from 20% of the cryptocurrency market cap to over 50% by 2026 (Figure 4).

FIGURE 4. INstitutional cryptocurrency holdings over time 

Source:  Opimas analysis.

Source: PlatoData Intelligence

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Blockchain

Bitcoin (BTC) Price Prediction: BTC/USD Faces Rejection Thrice at the $60,000 Resistance Zone, Resumes Downward Correction

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Bitcoin (BTC) Price Prediction – May 9, 2021
Bitcoin bulls have broken above the $58,000 resistance but the bullish momentum could not be sustained. Today, BTC/USD traded as price reached the high of $59,450. The king coin is likely to retrace to $57,000 low if the bulls fail to break the $60,000 psychological price level.

Resistance Levels: $65,000, $70,000, $75,000
Support Levels: $50,000, $45,000, $40,000

BTC/USD – Daily Chart

Bitcoin price was rejected thrice at the $60,000 resistance level. Buyers made frantic efforts to sustain the bullish momentum above the recent high but were repelled by overwhelming selling pressure. Consequently, Bitcoin has resumed a downward move as a result of a strong rejection at the resistance of $59,200. The current retracement will extend to the low of $57,000. Nevertheless, if price breaks below the $57,000 support, the market will continue the downward move. That is, the selling pressure will extend to the low of $53,000. On the upside, if price retraces and finds support above $58,000, the upside momentum will resume.

Bank of England Governor Warns on Crypto Investment
Andrew Bailey is the governor of the Bank of England who has warned crypto investors of the inherent dangers of cryptocurrency investment. The governor argued that cryptocurrencies lacked intrinsic value. According to him, “I would only emphasize what I’ve said quite a few times in recent years, [and] I’m afraid they have no intrinsic value. I’m sorry; I’m going to say this very bluntly again: Buy them only if you’re prepared to lose all your money.” Bailey’s comments are coming at a time when crypto markets are characterized by a huge spike in crypto prices. Major altcoins such as Polkadot, Chainlink, and XRP have also seen vertical price actions.

BTC/USD – 4 Hour Chart

Bitcoin risks another downward correction as the king coin faces stiff rejection at the $59,450 resistance. The Fibonacci tool has already indicated a marginal upward move of Bitcoin and a possible reversal. On May 1 uptrend; a retraced candle body tested the 78.6% Fibonacci retracement level. The retracement indicates that Bitcoin will rise to level 1. 272 Fibonacci extension or the high of $59,819.90. From the price action, BTC price has reached a high of $59,450 and has commenced a downward move.

Coinsmart. Beste Bitcoin-Börse in Europa
Source: https://insidebitcoins.com/news/bitcoin-btc-price-prediction-btc-usd-faces-rejection-thrice-at-the-60000-resistance-zone-resumes-downward-correction

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Dogecoin dumps following mention from Elon Musk on Saturday Night Live

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Meme cryptocurrency Dogecoin finally got its long-awaited shoutout on Saturday Night Live — but despite hodler hopes, the immediate result has been a violent dump.

First teased by entrepreneur and DOGE cheerleader Elon Musk in late April, the Tesla CEO finally mentioned the digital asset on live television tonight in his opening monologue of the sketch comedy show. The reference was a throwaway line from Musk’s mother, who joined him onstage and asked if her Mother’s Day gift would be Dogecoin; Musk replied that it would be. 

In the minutes afterwards, $DOGE dumped upwards of 25%, falling as low as $.50 from $.66 highs at the start of the show. It has since partially recovered, trading at $.52 at the time of publication.

An hour before the episode began, the price of DOGE sat at $.66, down from an all-time high of $.72. A pair of bearish headwinds may have shared responsibility for the pullback: Musk himself seemed to try and get ahead of the hype, urging followers in a Tweet to “invest with caution,” and a host of new data indicates that many investors may be rolling their DOGE profits into other, largecap digital assets

Additionally, Barry Silbert — the founder and CEO of Digital Currency Group, the parent company of crypto investment vehicle company Grayscale — announced a public short on DOGE via the FTX exchange. In a series of follow-up Tweets, he revealed that the position was $1 million in size, and that any proceeds or remaining funds after closing the short would be donated to charity. 

(It’s unclear if Silbert was is using “we” in reference to Digital Currency Group, one of its portfolio companies, or is simply and bizarrely using a plural pronoun in reference to himself). 

Many DOGE investors were nonetheless holding out hope for a high-profile shoutout on what looked to be a major pop culture event. NBC, the studio behind SNL, chose for the first time ever to live-stream the episode on Youtube, per the Wall Street Journal.

Even a mention could have significant impact on the price of DOGE as well: the meme currency has proven to be susceptible to price movements based on positive social media volume, and multiple studies have shown that Tweets from Musk often lead to price appreciation. A mention on an even bigger platform was thought to potentially lead to even greater gains. 

Leading into the premier of the episode, Alameda Research trader Sam Trabucco (who said in a previous Tweet that he was “studying the typical SNL episode structure to try and understand when a DOGE mention would be the most natural”) speculated that if a joke or mention didn’t come in Musk’s opening monologue, it would be “all over.”

Despite arriving during the monologue, traders nonetheless responded negatively. It remains to be seen if a DOGE-centric skit later in the show can perhaps turn the speculative asset’s fortunes around.

Coinsmart. Beste Bitcoin-Börse in Europa
Source: https://cointelegraph.com/news/dogecoin-dumps-following-mention-from-elon-musk-on-saturday-night-live

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