How to Swap and Repay with Collateral on Aave V2

Key Points

• On the dashboard, navigate to the borrowed asset and click repay.
• Choose the ‘Repay with current collateral’ option.
• Select the borrowed asset and the amount you want to repay from the collateral.
• Select collateral.
• Check and edit swap rate and slippage to your preferences.
• Send approval and submit the transaction.

In previous Aave versions, these simple steps took on four separate transactions. However, with the Aave V2, borrowers can repay their debts with collateral in one seamless transaction. 

Final Thoughts

The Aave V2 protocol is ahead of its competitors in functionality and ease. This open-source platform has demystified the intricacies of crypto lending and borrowing by offering transparency, security, less verification, mouth-watering interests, with updated lending and borrowing features at affordable gas rates. Aave V2 is bridging the gap of decentralized P2P payments in the crypto markets. Hence, it is one of the most preferred choices in the DeFi ecosystem. 

FAQs

1. Can you use AAVE as collateral?

AAVE tokens can be posted as collateral on the Aave V2 protocol. The protocol awards users who use AAVE tokens as collateral with increased borrowing limits and discounted gas fees. 

2. How much collateral must I put up to borrow on Aave?

Community members on Aave can borrow up to 80% of their collateralized asset’s value. The Loan to Value (”LTV”) ratio defines the maximum amount of assets that can be borrowed with a specific collateral. It is expressed as a percentage (e.g., at LTV=75%, for every 1 ETH worth of collateral, borrowers will be able to borrow 0.75 ETH worth of the corresponding currency). Once a borrow occurs, the LTV evolves with market conditions.

3. What is a good Aave health factor?

Aave health factor is a figure which represents the safety of your deposited or collateralized assets against your borrowed assets. A good Aave health factor is high and indicates safety from asset liquidation. Health factors less than or equal to 1 will trigger liquidation, while that above 1 is safe from liquidation.

4. Repay 

Aave users can repay their loans whenever possible, as there’s no time limit. As long as their position is safe, they can keep borrowing. However, the longer you stay without repaying the loan, the greater the accrued interest that is paid back. Hence, it is advised you repay at your earliest convenience to prevent asset liquidation. To repay the said loan, simply visit the borrow section on your Aave app dashboard and click ‘Repay’ on the borrowed asset. You’ll need to input the amount you want to repay and confirm the transaction. On Aave V2, you can also repay a loan with your collateral. Here’s how;

Repay with collateral.

Aave V2 users can repay their crypto loans with their deposited collateral. Borrowers can do this in these few steps;

• On the dashboard, navigate to the borrowed asset and click repay.
• Choose the ‘Repay with current collateral’ option.
• Select the borrowed asset and the amount you want to repay from the collateral.
• Select collateral.
• Check and edit swap rate and slippage to your preferences.
• Send approval and submit the transaction.

In previous Aave versions, these simple steps took on four separate transactions. However, with the Aave V2, borrowers can repay their debts with collateral in one seamless transaction. 

Final Thoughts

The Aave V2 protocol is ahead of its competitors in functionality and ease. This open-source platform has demystified the intricacies of crypto lending and borrowing by offering transparency, security, less verification, mouth-watering interests, with updated lending and borrowing features at affordable gas rates. Aave V2 is bridging the gap of decentralized P2P payments in the crypto markets. Hence, it is one of the most preferred choices in the DeFi ecosystem. 

FAQs

1. Can you use AAVE as collateral?

AAVE tokens can be posted as collateral on the Aave V2 protocol. The protocol awards users who use AAVE tokens as collateral with increased borrowing limits and discounted gas fees. 

2. How much collateral must I put up to borrow on Aave?

Community members on Aave can borrow up to 80% of their collateralized asset’s value. The Loan to Value (”LTV”) ratio defines the maximum amount of assets that can be borrowed with a specific collateral. It is expressed as a percentage (e.g., at LTV=75%, for every 1 ETH worth of collateral, borrowers will be able to borrow 0.75 ETH worth of the corresponding currency). Once a borrow occurs, the LTV evolves with market conditions.

3. What is a good Aave health factor?

Aave health factor is a figure which represents the safety of your deposited or collateralized assets against your borrowed assets. A good Aave health factor is high and indicates safety from asset liquidation. Health factors less than or equal to 1 will trigger liquidation, while that above 1 is safe from liquidation.

2. Lend

Aave V2 users can earn passive income on their assets by supplying to the liquidity pool, AKA becoming a lender. The decentralized nature of the platform makes lending more seamless than traditional financial institutions. Lenders can lend by first connecting their Ethereum wallets to the protocol and selecting the asset and the amount they wish to lend. 

There are about 37 Aave-supported cryptocurrencies on the protocol, and there’s no limit to the amount you can lend.

3. Borrow 

Aave V2 users can borrow to their heart’s content as there are several loan packages to choose from, like flash loans and uncollateralized loans. However, a criterion needs to be fulfilled before one can borrow from Aave. Borrowers must first deposit a crypto asset to be used as collateral for the intended loan. The collateral amount must be higher than that of the intended loan. After you’ve selected the asset and amount you intend to borrow, in the ‘Borrow’ section of the protocol, you can select your preferred type of Aave interest rate and then confirm your transaction. However, you can switch between both rates as often as you like. 

4. Repay 

Aave users can repay their loans whenever possible, as there’s no time limit. As long as their position is safe, they can keep borrowing. However, the longer you stay without repaying the loan, the greater the accrued interest that is paid back. Hence, it is advised you repay at your earliest convenience to prevent asset liquidation. To repay the said loan, simply visit the borrow section on your Aave app dashboard and click ‘Repay’ on the borrowed asset. You’ll need to input the amount you want to repay and confirm the transaction. On Aave V2, you can also repay a loan with your collateral. Here’s how;

Repay with collateral.

Aave V2 users can repay their crypto loans with their deposited collateral. Borrowers can do this in these few steps;

• On the dashboard, navigate to the borrowed asset and click repay.
• Choose the ‘Repay with current collateral’ option.
• Select the borrowed asset and the amount you want to repay from the collateral.
• Select collateral.
• Check and edit swap rate and slippage to your preferences.
• Send approval and submit the transaction.

In previous Aave versions, these simple steps took on four separate transactions. However, with the Aave V2, borrowers can repay their debts with collateral in one seamless transaction. 

Final Thoughts

The Aave V2 protocol is ahead of its competitors in functionality and ease. This open-source platform has demystified the intricacies of crypto lending and borrowing by offering transparency, security, less verification, mouth-watering interests, with updated lending and borrowing features at affordable gas rates. Aave V2 is bridging the gap of decentralized P2P payments in the crypto markets. Hence, it is one of the most preferred choices in the DeFi ecosystem. 

FAQs

1. Can you use AAVE as collateral?

AAVE tokens can be posted as collateral on the Aave V2 protocol. The protocol awards users who use AAVE tokens as collateral with increased borrowing limits and discounted gas fees. 

2. How much collateral must I put up to borrow on Aave?

Community members on Aave can borrow up to 80% of their collateralized asset’s value. The Loan to Value (”LTV”) ratio defines the maximum amount of assets that can be borrowed with a specific collateral. It is expressed as a percentage (e.g., at LTV=75%, for every 1 ETH worth of collateral, borrowers will be able to borrow 0.75 ETH worth of the corresponding currency). Once a borrow occurs, the LTV evolves with market conditions.

3. What is a good Aave health factor?

Aave health factor is a figure which represents the safety of your deposited or collateralized assets against your borrowed assets. A good Aave health factor is high and indicates safety from asset liquidation. Health factors less than or equal to 1 will trigger liquidation, while that above 1 is safe from liquidation.

• Margin Trading

Margin trading consists of lending and borrowing. Via Margin borrowing, Aave V2 users can directly take long and short-leveraged positions on supported assets without using third-party services. On the other hand, via Margin lending, lenders can increase the weight of their deposits. 

2. Lend

Aave V2 users can earn passive income on their assets by supplying to the liquidity pool, AKA becoming a lender. The decentralized nature of the platform makes lending more seamless than traditional financial institutions. Lenders can lend by first connecting their Ethereum wallets to the protocol and selecting the asset and the amount they wish to lend. 

There are about 37 Aave-supported cryptocurrencies on the protocol, and there’s no limit to the amount you can lend.

3. Borrow 

Aave V2 users can borrow to their heart’s content as there are several loan packages to choose from, like flash loans and uncollateralized loans. However, a criterion needs to be fulfilled before one can borrow from Aave. Borrowers must first deposit a crypto asset to be used as collateral for the intended loan. The collateral amount must be higher than that of the intended loan. After you’ve selected the asset and amount you intend to borrow, in the ‘Borrow’ section of the protocol, you can select your preferred type of Aave interest rate and then confirm your transaction. However, you can switch between both rates as often as you like. 

4. Repay 

Aave users can repay their loans whenever possible, as there’s no time limit. As long as their position is safe, they can keep borrowing. However, the longer you stay without repaying the loan, the greater the accrued interest that is paid back. Hence, it is advised you repay at your earliest convenience to prevent asset liquidation. To repay the said loan, simply visit the borrow section on your Aave app dashboard and click ‘Repay’ on the borrowed asset. You’ll need to input the amount you want to repay and confirm the transaction. On Aave V2, you can also repay a loan with your collateral. Here’s how;

Repay with collateral.

Aave V2 users can repay their crypto loans with their deposited collateral. Borrowers can do this in these few steps;

• On the dashboard, navigate to the borrowed asset and click repay.
• Choose the ‘Repay with current collateral’ option.
• Select the borrowed asset and the amount you want to repay from the collateral.
• Select collateral.
• Check and edit swap rate and slippage to your preferences.
• Send approval and submit the transaction.

In previous Aave versions, these simple steps took on four separate transactions. However, with the Aave V2, borrowers can repay their debts with collateral in one seamless transaction. 

Final Thoughts

The Aave V2 protocol is ahead of its competitors in functionality and ease. This open-source platform has demystified the intricacies of crypto lending and borrowing by offering transparency, security, less verification, mouth-watering interests, with updated lending and borrowing features at affordable gas rates. Aave V2 is bridging the gap of decentralized P2P payments in the crypto markets. Hence, it is one of the most preferred choices in the DeFi ecosystem. 

FAQs

1. Can you use AAVE as collateral?

AAVE tokens can be posted as collateral on the Aave V2 protocol. The protocol awards users who use AAVE tokens as collateral with increased borrowing limits and discounted gas fees. 

2. How much collateral must I put up to borrow on Aave?

Community members on Aave can borrow up to 80% of their collateralized asset’s value. The Loan to Value (”LTV”) ratio defines the maximum amount of assets that can be borrowed with a specific collateral. It is expressed as a percentage (e.g., at LTV=75%, for every 1 ETH worth of collateral, borrowers will be able to borrow 0.75 ETH worth of the corresponding currency). Once a borrow occurs, the LTV evolves with market conditions.

3. What is a good Aave health factor?

Aave health factor is a figure which represents the safety of your deposited or collateralized assets against your borrowed assets. A good Aave health factor is high and indicates safety from asset liquidation. Health factors less than or equal to 1 will trigger liquidation, while that above 1 is safe from liquidation.

• Go to the Swap section on the Aave protocol.
• Select the asset you want to swap from, with the amount on the left-hand side.
• Select the asset you want to swap to on the right-hand side.
• Check, edit and confirm the swap rate and slippage.
• Send approval and submit the transaction.

To guarantee a smooth collateral swap, ensure you have enough ETH to cover the transaction costs. 

• Margin Trading

Margin trading consists of lending and borrowing. Via Margin borrowing, Aave V2 users can directly take long and short-leveraged positions on supported assets without using third-party services. On the other hand, via Margin lending, lenders can increase the weight of their deposits. 

2. Lend

Aave V2 users can earn passive income on their assets by supplying to the liquidity pool, AKA becoming a lender. The decentralized nature of the platform makes lending more seamless than traditional financial institutions. Lenders can lend by first connecting their Ethereum wallets to the protocol and selecting the asset and the amount they wish to lend. 

There are about 37 Aave-supported cryptocurrencies on the protocol, and there’s no limit to the amount you can lend.

3. Borrow 

Aave V2 users can borrow to their heart’s content as there are several loan packages to choose from, like flash loans and uncollateralized loans. However, a criterion needs to be fulfilled before one can borrow from Aave. Borrowers must first deposit a crypto asset to be used as collateral for the intended loan. The collateral amount must be higher than that of the intended loan. After you’ve selected the asset and amount you intend to borrow, in the ‘Borrow’ section of the protocol, you can select your preferred type of Aave interest rate and then confirm your transaction. However, you can switch between both rates as often as you like. 

4. Repay 

Aave users can repay their loans whenever possible, as there’s no time limit. As long as their position is safe, they can keep borrowing. However, the longer you stay without repaying the loan, the greater the accrued interest that is paid back. Hence, it is advised you repay at your earliest convenience to prevent asset liquidation. To repay the said loan, simply visit the borrow section on your Aave app dashboard and click ‘Repay’ on the borrowed asset. You’ll need to input the amount you want to repay and confirm the transaction. On Aave V2, you can also repay a loan with your collateral. Here’s how;

Repay with collateral.

Aave V2 users can repay their crypto loans with their deposited collateral. Borrowers can do this in these few steps;

• On the dashboard, navigate to the borrowed asset and click repay.
• Choose the ‘Repay with current collateral’ option.
• Select the borrowed asset and the amount you want to repay from the collateral.
• Select collateral.
• Check and edit swap rate and slippage to your preferences.
• Send approval and submit the transaction.

In previous Aave versions, these simple steps took on four separate transactions. However, with the Aave V2, borrowers can repay their debts with collateral in one seamless transaction. 

Final Thoughts

The Aave V2 protocol is ahead of its competitors in functionality and ease. This open-source platform has demystified the intricacies of crypto lending and borrowing by offering transparency, security, less verification, mouth-watering interests, with updated lending and borrowing features at affordable gas rates. Aave V2 is bridging the gap of decentralized P2P payments in the crypto markets. Hence, it is one of the most preferred choices in the DeFi ecosystem. 

FAQs

1. Can you use AAVE as collateral?

AAVE tokens can be posted as collateral on the Aave V2 protocol. The protocol awards users who use AAVE tokens as collateral with increased borrowing limits and discounted gas fees. 

2. How much collateral must I put up to borrow on Aave?

Community members on Aave can borrow up to 80% of their collateralized asset’s value. The Loan to Value (”LTV”) ratio defines the maximum amount of assets that can be borrowed with a specific collateral. It is expressed as a percentage (e.g., at LTV=75%, for every 1 ETH worth of collateral, borrowers will be able to borrow 0.75 ETH worth of the corresponding currency). Once a borrow occurs, the LTV evolves with market conditions.

3. What is a good Aave health factor?

Aave health factor is a figure which represents the safety of your deposited or collateralized assets against your borrowed assets. A good Aave health factor is high and indicates safety from asset liquidation. Health factors less than or equal to 1 will trigger liquidation, while that above 1 is safe from liquidation.

• Collateral Trading/Swapping

This is otherwise called the collateral swap. On Aave V2, you can trade or swap your deposited assets for any supported cryptocurrencies in the protocol, even if the asset is collateral. In essence, if a user deposits DAI as collateral and wants to switch the asset’s value to another cryptocurrency like FEI, they can attain that in these few steps:

• Go to the Swap section on the Aave protocol.
• Select the asset you want to swap from, with the amount on the left-hand side.
• Select the asset you want to swap to on the right-hand side.
• Check, edit and confirm the swap rate and slippage.
• Send approval and submit the transaction.

To guarantee a smooth collateral swap, ensure you have enough ETH to cover the transaction costs. 

• Margin Trading

Margin trading consists of lending and borrowing. Via Margin borrowing, Aave V2 users can directly take long and short-leveraged positions on supported assets without using third-party services. On the other hand, via Margin lending, lenders can increase the weight of their deposits. 

2. Lend

Aave V2 users can earn passive income on their assets by supplying to the liquidity pool, AKA becoming a lender. The decentralized nature of the platform makes lending more seamless than traditional financial institutions. Lenders can lend by first connecting their Ethereum wallets to the protocol and selecting the asset and the amount they wish to lend. 

There are about 37 Aave-supported cryptocurrencies on the protocol, and there’s no limit to the amount you can lend.

3. Borrow 

Aave V2 users can borrow to their heart’s content as there are several loan packages to choose from, like flash loans and uncollateralized loans. However, a criterion needs to be fulfilled before one can borrow from Aave. Borrowers must first deposit a crypto asset to be used as collateral for the intended loan. The collateral amount must be higher than that of the intended loan. After you’ve selected the asset and amount you intend to borrow, in the ‘Borrow’ section of the protocol, you can select your preferred type of Aave interest rate and then confirm your transaction. However, you can switch between both rates as often as you like. 

4. Repay 

Aave users can repay their loans whenever possible, as there’s no time limit. As long as their position is safe, they can keep borrowing. However, the longer you stay without repaying the loan, the greater the accrued interest that is paid back. Hence, it is advised you repay at your earliest convenience to prevent asset liquidation. To repay the said loan, simply visit the borrow section on your Aave app dashboard and click ‘Repay’ on the borrowed asset. You’ll need to input the amount you want to repay and confirm the transaction. On Aave V2, you can also repay a loan with your collateral. Here’s how;

Repay with collateral.

Aave V2 users can repay their crypto loans with their deposited collateral. Borrowers can do this in these few steps;

• On the dashboard, navigate to the borrowed asset and click repay.
• Choose the ‘Repay with current collateral’ option.
• Select the borrowed asset and the amount you want to repay from the collateral.
• Select collateral.
• Check and edit swap rate and slippage to your preferences.
• Send approval and submit the transaction.

In previous Aave versions, these simple steps took on four separate transactions. However, with the Aave V2, borrowers can repay their debts with collateral in one seamless transaction. 

Final Thoughts

The Aave V2 protocol is ahead of its competitors in functionality and ease. This open-source platform has demystified the intricacies of crypto lending and borrowing by offering transparency, security, less verification, mouth-watering interests, with updated lending and borrowing features at affordable gas rates. Aave V2 is bridging the gap of decentralized P2P payments in the crypto markets. Hence, it is one of the most preferred choices in the DeFi ecosystem. 

FAQs

1. Can you use AAVE as collateral?

AAVE tokens can be posted as collateral on the Aave V2 protocol. The protocol awards users who use AAVE tokens as collateral with increased borrowing limits and discounted gas fees. 

2. How much collateral must I put up to borrow on Aave?

Community members on Aave can borrow up to 80% of their collateralized asset’s value. The Loan to Value (”LTV”) ratio defines the maximum amount of assets that can be borrowed with a specific collateral. It is expressed as a percentage (e.g., at LTV=75%, for every 1 ETH worth of collateral, borrowers will be able to borrow 0.75 ETH worth of the corresponding currency). Once a borrow occurs, the LTV evolves with market conditions.

3. What is a good Aave health factor?

Aave health factor is a figure which represents the safety of your deposited or collateralized assets against your borrowed assets. A good Aave health factor is high and indicates safety from asset liquidation. Health factors less than or equal to 1 will trigger liquidation, while that above 1 is safe from liquidation.

• Debt Trading

Due to the difficulty in managing fluctuating Aave interest rates, users of the V2 protocol can now trade their debt position from one asset to another. In essence, borrowers could borrow DAI crypto and then change their debt position to USDC whenever USDC becomes cheaper to borrow or has lower borrowing rates. All of this can be effectively carried out in a single transaction. Debt trading in Aave V2 offers community members endless possibilities, including yield and interest rate optimization. 

• Collateral Trading/Swapping

This is otherwise called the collateral swap. On Aave V2, you can trade or swap your deposited assets for any supported cryptocurrencies in the protocol, even if the asset is collateral. In essence, if a user deposits DAI as collateral and wants to switch the asset’s value to another cryptocurrency like FEI, they can attain that in these few steps:

• Go to the Swap section on the Aave protocol.
• Select the asset you want to swap from, with the amount on the left-hand side.
• Select the asset you want to swap to on the right-hand side.
• Check, edit and confirm the swap rate and slippage.
• Send approval and submit the transaction.

To guarantee a smooth collateral swap, ensure you have enough ETH to cover the transaction costs. 

• Margin Trading

Margin trading consists of lending and borrowing. Via Margin borrowing, Aave V2 users can directly take long and short-leveraged positions on supported assets without using third-party services. On the other hand, via Margin lending, lenders can increase the weight of their deposits. 

2. Lend

Aave V2 users can earn passive income on their assets by supplying to the liquidity pool, AKA becoming a lender. The decentralized nature of the platform makes lending more seamless than traditional financial institutions. Lenders can lend by first connecting their Ethereum wallets to the protocol and selecting the asset and the amount they wish to lend. 

There are about 37 Aave-supported cryptocurrencies on the protocol, and there’s no limit to the amount you can lend.

3. Borrow 

Aave V2 users can borrow to their heart’s content as there are several loan packages to choose from, like flash loans and uncollateralized loans. However, a criterion needs to be fulfilled before one can borrow from Aave. Borrowers must first deposit a crypto asset to be used as collateral for the intended loan. The collateral amount must be higher than that of the intended loan. After you’ve selected the asset and amount you intend to borrow, in the ‘Borrow’ section of the protocol, you can select your preferred type of Aave interest rate and then confirm your transaction. However, you can switch between both rates as often as you like. 

4. Repay 

Aave users can repay their loans whenever possible, as there’s no time limit. As long as their position is safe, they can keep borrowing. However, the longer you stay without repaying the loan, the greater the accrued interest that is paid back. Hence, it is advised you repay at your earliest convenience to prevent asset liquidation. To repay the said loan, simply visit the borrow section on your Aave app dashboard and click ‘Repay’ on the borrowed asset. You’ll need to input the amount you want to repay and confirm the transaction. On Aave V2, you can also repay a loan with your collateral. Here’s how;

Repay with collateral.

Aave V2 users can repay their crypto loans with their deposited collateral. Borrowers can do this in these few steps;

• On the dashboard, navigate to the borrowed asset and click repay.
• Choose the ‘Repay with current collateral’ option.
• Select the borrowed asset and the amount you want to repay from the collateral.
• Select collateral.
• Check and edit swap rate and slippage to your preferences.
• Send approval and submit the transaction.

In previous Aave versions, these simple steps took on four separate transactions. However, with the Aave V2, borrowers can repay their debts with collateral in one seamless transaction. 

Final Thoughts

The Aave V2 protocol is ahead of its competitors in functionality and ease. This open-source platform has demystified the intricacies of crypto lending and borrowing by offering transparency, security, less verification, mouth-watering interests, with updated lending and borrowing features at affordable gas rates. Aave V2 is bridging the gap of decentralized P2P payments in the crypto markets. Hence, it is one of the most preferred choices in the DeFi ecosystem. 

FAQs

1. Can you use AAVE as collateral?

AAVE tokens can be posted as collateral on the Aave V2 protocol. The protocol awards users who use AAVE tokens as collateral with increased borrowing limits and discounted gas fees. 

2. How much collateral must I put up to borrow on Aave?

Community members on Aave can borrow up to 80% of their collateralized asset’s value. The Loan to Value (”LTV”) ratio defines the maximum amount of assets that can be borrowed with a specific collateral. It is expressed as a percentage (e.g., at LTV=75%, for every 1 ETH worth of collateral, borrowers will be able to borrow 0.75 ETH worth of the corresponding currency). Once a borrow occurs, the LTV evolves with market conditions.

3. What is a good Aave health factor?

Aave health factor is a figure which represents the safety of your deposited or collateralized assets against your borrowed assets. A good Aave health factor is high and indicates safety from asset liquidation. Health factors less than or equal to 1 will trigger liquidation, while that above 1 is safe from liquidation.

1. Trade

On Aave V2, users can perform several types of trades like:

• Debt Trading

Due to the difficulty in managing fluctuating Aave interest rates, users of the V2 protocol can now trade their debt position from one asset to another. In essence, borrowers could borrow DAI crypto and then change their debt position to USDC whenever USDC becomes cheaper to borrow or has lower borrowing rates. All of this can be effectively carried out in a single transaction. Debt trading in Aave V2 offers community members endless possibilities, including yield and interest rate optimization. 

• Collateral Trading/Swapping

This is otherwise called the collateral swap. On Aave V2, you can trade or swap your deposited assets for any supported cryptocurrencies in the protocol, even if the asset is collateral. In essence, if a user deposits DAI as collateral and wants to switch the asset’s value to another cryptocurrency like FEI, they can attain that in these few steps:

• Go to the Swap section on the Aave protocol.
• Select the asset you want to swap from, with the amount on the left-hand side.
• Select the asset you want to swap to on the right-hand side.
• Check, edit and confirm the swap rate and slippage.
• Send approval and submit the transaction.

To guarantee a smooth collateral swap, ensure you have enough ETH to cover the transaction costs. 

• Margin Trading

Margin trading consists of lending and borrowing. Via Margin borrowing, Aave V2 users can directly take long and short-leveraged positions on supported assets without using third-party services. On the other hand, via Margin lending, lenders can increase the weight of their deposits. 

2. Lend

Aave V2 users can earn passive income on their assets by supplying to the liquidity pool, AKA becoming a lender. The decentralized nature of the platform makes lending more seamless than traditional financial institutions. Lenders can lend by first connecting their Ethereum wallets to the protocol and selecting the asset and the amount they wish to lend. 

There are about 37 Aave-supported cryptocurrencies on the protocol, and there’s no limit to the amount you can lend.

3. Borrow 

Aave V2 users can borrow to their heart’s content as there are several loan packages to choose from, like flash loans and uncollateralized loans. However, a criterion needs to be fulfilled before one can borrow from Aave. Borrowers must first deposit a crypto asset to be used as collateral for the intended loan. The collateral amount must be higher than that of the intended loan. After you’ve selected the asset and amount you intend to borrow, in the ‘Borrow’ section of the protocol, you can select your preferred type of Aave interest rate and then confirm your transaction. However, you can switch between both rates as often as you like. 

4. Repay 

Aave users can repay their loans whenever possible, as there’s no time limit. As long as their position is safe, they can keep borrowing. However, the longer you stay without repaying the loan, the greater the accrued interest that is paid back. Hence, it is advised you repay at your earliest convenience to prevent asset liquidation. To repay the said loan, simply visit the borrow section on your Aave app dashboard and click ‘Repay’ on the borrowed asset. You’ll need to input the amount you want to repay and confirm the transaction. On Aave V2, you can also repay a loan with your collateral. Here’s how;

Repay with collateral.

Aave V2 users can repay their crypto loans with their deposited collateral. Borrowers can do this in these few steps;

• On the dashboard, navigate to the borrowed asset and click repay.
• Choose the ‘Repay with current collateral’ option.
• Select the borrowed asset and the amount you want to repay from the collateral.
• Select collateral.
• Check and edit swap rate and slippage to your preferences.
• Send approval and submit the transaction.

In previous Aave versions, these simple steps took on four separate transactions. However, with the Aave V2, borrowers can repay their debts with collateral in one seamless transaction. 

Final Thoughts

The Aave V2 protocol is ahead of its competitors in functionality and ease. This open-source platform has demystified the intricacies of crypto lending and borrowing by offering transparency, security, less verification, mouth-watering interests, with updated lending and borrowing features at affordable gas rates. Aave V2 is bridging the gap of decentralized P2P payments in the crypto markets. Hence, it is one of the most preferred choices in the DeFi ecosystem. 

FAQs

1. Can you use AAVE as collateral?

AAVE tokens can be posted as collateral on the Aave V2 protocol. The protocol awards users who use AAVE tokens as collateral with increased borrowing limits and discounted gas fees. 

2. How much collateral must I put up to borrow on Aave?

Community members on Aave can borrow up to 80% of their collateralized asset’s value. The Loan to Value (”LTV”) ratio defines the maximum amount of assets that can be borrowed with a specific collateral. It is expressed as a percentage (e.g., at LTV=75%, for every 1 ETH worth of collateral, borrowers will be able to borrow 0.75 ETH worth of the corresponding currency). Once a borrow occurs, the LTV evolves with market conditions.

3. What is a good Aave health factor?

Aave health factor is a figure which represents the safety of your deposited or collateralized assets against your borrowed assets. A good Aave health factor is high and indicates safety from asset liquidation. Health factors less than or equal to 1 will trigger liquidation, while that above 1 is safe from liquidation.

• Variable Interest Rate – Typically associated with in-demand assets. It rapidly fluctuates with market conditions and offers higher risk.
• Stable Interest Rate – Associated with stable assets and is fixed over a short term.

About $5 billion worth of crypto assets is accruing interest on the protocol. To access this pool as a borrower, you must have a certain amount of digital assets to be used as collateral on the platform. It’s critical to mention that if a borrower’s collateral is below the protocol’s stipulated threshold, said collateral will be placed in liquidation and purchased at a discount by other users. 

What to do on Aave

Aave V2 permits its users, developers and community members to perform multiple transactions. Here is a handful of them;

1. Trade

On Aave V2, users can perform several types of trades like:

• Debt Trading

Due to the difficulty in managing fluctuating Aave interest rates, users of the V2 protocol can now trade their debt position from one asset to another. In essence, borrowers could borrow DAI crypto and then change their debt position to USDC whenever USDC becomes cheaper to borrow or has lower borrowing rates. All of this can be effectively carried out in a single transaction. Debt trading in Aave V2 offers community members endless possibilities, including yield and interest rate optimization. 

• Collateral Trading/Swapping

This is otherwise called the collateral swap. On Aave V2, you can trade or swap your deposited assets for any supported cryptocurrencies in the protocol, even if the asset is collateral. In essence, if a user deposits DAI as collateral and wants to switch the asset’s value to another cryptocurrency like FEI, they can attain that in these few steps:

• Go to the Swap section on the Aave protocol.
• Select the asset you want to swap from, with the amount on the left-hand side.
• Select the asset you want to swap to on the right-hand side.
• Check, edit and confirm the swap rate and slippage.
• Send approval and submit the transaction.

To guarantee a smooth collateral swap, ensure you have enough ETH to cover the transaction costs. 

• Margin Trading

Margin trading consists of lending and borrowing. Via Margin borrowing, Aave V2 users can directly take long and short-leveraged positions on supported assets without using third-party services. On the other hand, via Margin lending, lenders can increase the weight of their deposits. 

2. Lend

Aave V2 users can earn passive income on their assets by supplying to the liquidity pool, AKA becoming a lender. The decentralized nature of the platform makes lending more seamless than traditional financial institutions. Lenders can lend by first connecting their Ethereum wallets to the protocol and selecting the asset and the amount they wish to lend. 

There are about 37 Aave-supported cryptocurrencies on the protocol, and there’s no limit to the amount you can lend.

3. Borrow 

Aave V2 users can borrow to their heart’s content as there are several loan packages to choose from, like flash loans and uncollateralized loans. However, a criterion needs to be fulfilled before one can borrow from Aave. Borrowers must first deposit a crypto asset to be used as collateral for the intended loan. The collateral amount must be higher than that of the intended loan. After you’ve selected the asset and amount you intend to borrow, in the ‘Borrow’ section of the protocol, you can select your preferred type of Aave interest rate and then confirm your transaction. However, you can switch between both rates as often as you like. 

4. Repay 

Aave users can repay their loans whenever possible, as there’s no time limit. As long as their position is safe, they can keep borrowing. However, the longer you stay without repaying the loan, the greater the accrued interest that is paid back. Hence, it is advised you repay at your earliest convenience to prevent asset liquidation. To repay the said loan, simply visit the borrow section on your Aave app dashboard and click ‘Repay’ on the borrowed asset. You’ll need to input the amount you want to repay and confirm the transaction. On Aave V2, you can also repay a loan with your collateral. Here’s how;

Repay with collateral.

Aave V2 users can repay their crypto loans with their deposited collateral. Borrowers can do this in these few steps;

• On the dashboard, navigate to the borrowed asset and click repay.
• Choose the ‘Repay with current collateral’ option.
• Select the borrowed asset and the amount you want to repay from the collateral.
• Select collateral.
• Check and edit swap rate and slippage to your preferences.
• Send approval and submit the transaction.

In previous Aave versions, these simple steps took on four separate transactions. However, with the Aave V2, borrowers can repay their debts with collateral in one seamless transaction. 

Final Thoughts

The Aave V2 protocol is ahead of its competitors in functionality and ease. This open-source platform has demystified the intricacies of crypto lending and borrowing by offering transparency, security, less verification, mouth-watering interests, with updated lending and borrowing features at affordable gas rates. Aave V2 is bridging the gap of decentralized P2P payments in the crypto markets. Hence, it is one of the most preferred choices in the DeFi ecosystem. 

FAQs

1. Can you use AAVE as collateral?

AAVE tokens can be posted as collateral on the Aave V2 protocol. The protocol awards users who use AAVE tokens as collateral with increased borrowing limits and discounted gas fees. 

2. How much collateral must I put up to borrow on Aave?

Community members on Aave can borrow up to 80% of their collateralized asset’s value. The Loan to Value (”LTV”) ratio defines the maximum amount of assets that can be borrowed with a specific collateral. It is expressed as a percentage (e.g., at LTV=75%, for every 1 ETH worth of collateral, borrowers will be able to borrow 0.75 ETH worth of the corresponding currency). Once a borrow occurs, the LTV evolves with market conditions.

3. What is a good Aave health factor?

Aave health factor is a figure which represents the safety of your deposited or collateralized assets against your borrowed assets. A good Aave health factor is high and indicates safety from asset liquidation. Health factors less than or equal to 1 will trigger liquidation, while that above 1 is safe from liquidation.

3. Debt Tokenisation

On Aave, tokens are issued to borrowers as the debt positions of users can be tokenized. Receiving tokens representing one’s debt facilitates delegating native credit within the protocol. Users can trade these debt tokens on DEX, and it also helps implement user-specific yield farming strategies and cold wallets’ native position management. 

How does Aave work?

You might wonder how the Aave protocol works. It’s pretty simple. Users who wish to earn interest by becoming lenders deposit their assets into the protocol’s liquidity pool. Community members who wish to borrow receive funds from this pool. To access the liquidity pool, borrowers must first provide over-collateralized assets in ERC-20 tokens. 

On Aave, interest rates for borrowers and lenders are displayed on the network pool. These rates differ depending on the cryptocurrency.

Aave lending rates for lenders are displayed as APY (Annual Profit Yield), while Aave borrowing rates are denoted as APR (Annual Profit Return). Market conditions determine Aave interest rates. 

In this DeFi protocol, borrowers are entitled to two interest rates;

• Variable Interest Rate – Typically associated with in-demand assets. It rapidly fluctuates with market conditions and offers higher risk.
• Stable Interest Rate – Associated with stable assets and is fixed over a short term.

About $5 billion worth of crypto assets is accruing interest on the protocol. To access this pool as a borrower, you must have a certain amount of digital assets to be used as collateral on the platform. It’s critical to mention that if a borrower’s collateral is below the protocol’s stipulated threshold, said collateral will be placed in liquidation and purchased at a discount by other users. 

What to do on Aave

Aave V2 permits its users, developers and community members to perform multiple transactions. Here is a handful of them;

1. Trade

On Aave V2, users can perform several types of trades like:

• Debt Trading

Due to the difficulty in managing fluctuating Aave interest rates, users of the V2 protocol can now trade their debt position from one asset to another. In essence, borrowers could borrow DAI crypto and then change their debt position to USDC whenever USDC becomes cheaper to borrow or has lower borrowing rates. All of this can be effectively carried out in a single transaction. Debt trading in Aave V2 offers community members endless possibilities, including yield and interest rate optimization. 

• Collateral Trading/Swapping

This is otherwise called the collateral swap. On Aave V2, you can trade or swap your deposited assets for any supported cryptocurrencies in the protocol, even if the asset is collateral. In essence, if a user deposits DAI as collateral and wants to switch the asset’s value to another cryptocurrency like FEI, they can attain that in these few steps:

• Go to the Swap section on the Aave protocol.
• Select the asset you want to swap from, with the amount on the left-hand side.
• Select the asset you want to swap to on the right-hand side.
• Check, edit and confirm the swap rate and slippage.
• Send approval and submit the transaction.

To guarantee a smooth collateral swap, ensure you have enough ETH to cover the transaction costs. 

• Margin Trading

Margin trading consists of lending and borrowing. Via Margin borrowing, Aave V2 users can directly take long and short-leveraged positions on supported assets without using third-party services. On the other hand, via Margin lending, lenders can increase the weight of their deposits. 

2. Lend

Aave V2 users can earn passive income on their assets by supplying to the liquidity pool, AKA becoming a lender. The decentralized nature of the platform makes lending more seamless than traditional financial institutions. Lenders can lend by first connecting their Ethereum wallets to the protocol and selecting the asset and the amount they wish to lend. 

There are about 37 Aave-supported cryptocurrencies on the protocol, and there’s no limit to the amount you can lend.

3. Borrow 

Aave V2 users can borrow to their heart’s content as there are several loan packages to choose from, like flash loans and uncollateralized loans. However, a criterion needs to be fulfilled before one can borrow from Aave. Borrowers must first deposit a crypto asset to be used as collateral for the intended loan. The collateral amount must be higher than that of the intended loan. After you’ve selected the asset and amount you intend to borrow, in the ‘Borrow’ section of the protocol, you can select your preferred type of Aave interest rate and then confirm your transaction. However, you can switch between both rates as often as you like. 

4. Repay 

Aave users can repay their loans whenever possible, as there’s no time limit. As long as their position is safe, they can keep borrowing. However, the longer you stay without repaying the loan, the greater the accrued interest that is paid back. Hence, it is advised you repay at your earliest convenience to prevent asset liquidation. To repay the said loan, simply visit the borrow section on your Aave app dashboard and click ‘Repay’ on the borrowed asset. You’ll need to input the amount you want to repay and confirm the transaction. On Aave V2, you can also repay a loan with your collateral. Here’s how;

Repay with collateral.

Aave V2 users can repay their crypto loans with their deposited collateral. Borrowers can do this in these few steps;

• On the dashboard, navigate to the borrowed asset and click repay.
• Choose the ‘Repay with current collateral’ option.
• Select the borrowed asset and the amount you want to repay from the collateral.
• Select collateral.
• Check and edit swap rate and slippage to your preferences.
• Send approval and submit the transaction.

In previous Aave versions, these simple steps took on four separate transactions. However, with the Aave V2, borrowers can repay their debts with collateral in one seamless transaction. 

Final Thoughts

The Aave V2 protocol is ahead of its competitors in functionality and ease. This open-source platform has demystified the intricacies of crypto lending and borrowing by offering transparency, security, less verification, mouth-watering interests, with updated lending and borrowing features at affordable gas rates. Aave V2 is bridging the gap of decentralized P2P payments in the crypto markets. Hence, it is one of the most preferred choices in the DeFi ecosystem. 

FAQs

1. Can you use AAVE as collateral?

AAVE tokens can be posted as collateral on the Aave V2 protocol. The protocol awards users who use AAVE tokens as collateral with increased borrowing limits and discounted gas fees. 

2. How much collateral must I put up to borrow on Aave?

Community members on Aave can borrow up to 80% of their collateralized asset’s value. The Loan to Value (”LTV”) ratio defines the maximum amount of assets that can be borrowed with a specific collateral. It is expressed as a percentage (e.g., at LTV=75%, for every 1 ETH worth of collateral, borrowers will be able to borrow 0.75 ETH worth of the corresponding currency). Once a borrow occurs, the LTV evolves with market conditions.

3. What is a good Aave health factor?

Aave health factor is a figure which represents the safety of your deposited or collateralized assets against your borrowed assets. A good Aave health factor is high and indicates safety from asset liquidation. Health factors less than or equal to 1 will trigger liquidation, while that above 1 is safe from liquidation.

2. Security

As a non-custodial protocol, Aave doesn’t host the cryptocurrency in the liquidity pool as crypto assets remain in the user’s external wallet. Hence, your assets are safe because they’re in your custody and control and not on the protocol. 

However, like any other open-source, decentralized platform, Aave can still be targeted by threat actors who prey on vulnerabilities emerging from users or other entities. For this reason, the site’s cyber defense strategy must be robust. Aave’s protocol defense system includes high-profile security auditors like OpenZeppelin, Trail of Bits, Peck Shield, and many more. Aave V2’s security builds on that of V1 as the protocol’s design has been simplified, while its architecture has been improved to be more verification-friendly. Aave V2 is also working with leading verification technologies like Certora and auditors like Consensys Diligence to facilitate these security changes.

In addition to these security measures, Aave also has a bug bounty program which incentivizes responsible security disclosure while enhancing the platform’s security. In this program, community members submit reports of bugs or vulnerabilities for the chance to win mouth-watering rewards. Depending on the severity of the disclosed bug or vulnerability, members could earn up to $250,000 in rewards. 

3. Debt Tokenisation

On Aave, tokens are issued to borrowers as the debt positions of users can be tokenized. Receiving tokens representing one’s debt facilitates delegating native credit within the protocol. Users can trade these debt tokens on DEX, and it also helps implement user-specific yield farming strategies and cold wallets’ native position management. 

How does Aave work?

You might wonder how the Aave protocol works. It’s pretty simple. Users who wish to earn interest by becoming lenders deposit their assets into the protocol’s liquidity pool. Community members who wish to borrow receive funds from this pool. To access the liquidity pool, borrowers must first provide over-collateralized assets in ERC-20 tokens. 

On Aave, interest rates for borrowers and lenders are displayed on the network pool. These rates differ depending on the cryptocurrency.

Aave lending rates for lenders are displayed as APY (Annual Profit Yield), while Aave borrowing rates are denoted as APR (Annual Profit Return). Market conditions determine Aave interest rates. 

In this DeFi protocol, borrowers are entitled to two interest rates;

• Variable Interest Rate – Typically associated with in-demand assets. It rapidly fluctuates with market conditions and offers higher risk.
• Stable Interest Rate – Associated with stable assets and is fixed over a short term.

About $5 billion worth of crypto assets is accruing interest on the protocol. To access this pool as a borrower, you must have a certain amount of digital assets to be used as collateral on the platform. It’s critical to mention that if a borrower’s collateral is below the protocol’s stipulated threshold, said collateral will be placed in liquidation and purchased at a discount by other users. 

What to do on Aave

Aave V2 permits its users, developers and community members to perform multiple transactions. Here is a handful of them;

1. Trade

On Aave V2, users can perform several types of trades like:

• Debt Trading

Due to the difficulty in managing fluctuating Aave interest rates, users of the V2 protocol can now trade their debt position from one asset to another. In essence, borrowers could borrow DAI crypto and then change their debt position to USDC whenever USDC becomes cheaper to borrow or has lower borrowing rates. All of this can be effectively carried out in a single transaction. Debt trading in Aave V2 offers community members endless possibilities, including yield and interest rate optimization. 

• Collateral Trading/Swapping

This is otherwise called the collateral swap. On Aave V2, you can trade or swap your deposited assets for any supported cryptocurrencies in the protocol, even if the asset is collateral. In essence, if a user deposits DAI as collateral and wants to switch the asset’s value to another cryptocurrency like FEI, they can attain that in these few steps:

• Go to the Swap section on the Aave protocol.
• Select the asset you want to swap from, with the amount on the left-hand side.
• Select the asset you want to swap to on the right-hand side.
• Check, edit and confirm the swap rate and slippage.
• Send approval and submit the transaction.

To guarantee a smooth collateral swap, ensure you have enough ETH to cover the transaction costs. 

• Margin Trading

Margin trading consists of lending and borrowing. Via Margin borrowing, Aave V2 users can directly take long and short-leveraged positions on supported assets without using third-party services. On the other hand, via Margin lending, lenders can increase the weight of their deposits. 

2. Lend

Aave V2 users can earn passive income on their assets by supplying to the liquidity pool, AKA becoming a lender. The decentralized nature of the platform makes lending more seamless than traditional financial institutions. Lenders can lend by first connecting their Ethereum wallets to the protocol and selecting the asset and the amount they wish to lend. 

There are about 37 Aave-supported cryptocurrencies on the protocol, and there’s no limit to the amount you can lend.

3. Borrow 

Aave V2 users can borrow to their heart’s content as there are several loan packages to choose from, like flash loans and uncollateralized loans. However, a criterion needs to be fulfilled before one can borrow from Aave. Borrowers must first deposit a crypto asset to be used as collateral for the intended loan. The collateral amount must be higher than that of the intended loan. After you’ve selected the asset and amount you intend to borrow, in the ‘Borrow’ section of the protocol, you can select your preferred type of Aave interest rate and then confirm your transaction. However, you can switch between both rates as often as you like. 

4. Repay 

Aave users can repay their loans whenever possible, as there’s no time limit. As long as their position is safe, they can keep borrowing. However, the longer you stay without repaying the loan, the greater the accrued interest that is paid back. Hence, it is advised you repay at your earliest convenience to prevent asset liquidation. To repay the said loan, simply visit the borrow section on your Aave app dashboard and click ‘Repay’ on the borrowed asset. You’ll need to input the amount you want to repay and confirm the transaction. On Aave V2, you can also repay a loan with your collateral. Here’s how;

Repay with collateral.

Aave V2 users can repay their crypto loans with their deposited collateral. Borrowers can do this in these few steps;

• On the dashboard, navigate to the borrowed asset and click repay.
• Choose the ‘Repay with current collateral’ option.
• Select the borrowed asset and the amount you want to repay from the collateral.
• Select collateral.
• Check and edit swap rate and slippage to your preferences.
• Send approval and submit the transaction.

In previous Aave versions, these simple steps took on four separate transactions. However, with the Aave V2, borrowers can repay their debts with collateral in one seamless transaction. 

Final Thoughts

The Aave V2 protocol is ahead of its competitors in functionality and ease. This open-source platform has demystified the intricacies of crypto lending and borrowing by offering transparency, security, less verification, mouth-watering interests, with updated lending and borrowing features at affordable gas rates. Aave V2 is bridging the gap of decentralized P2P payments in the crypto markets. Hence, it is one of the most preferred choices in the DeFi ecosystem. 

FAQs

1. Can you use AAVE as collateral?

AAVE tokens can be posted as collateral on the Aave V2 protocol. The protocol awards users who use AAVE tokens as collateral with increased borrowing limits and discounted gas fees. 

2. How much collateral must I put up to borrow on Aave?

Community members on Aave can borrow up to 80% of their collateralized asset’s value. The Loan to Value (”LTV”) ratio defines the maximum amount of assets that can be borrowed with a specific collateral. It is expressed as a percentage (e.g., at LTV=75%, for every 1 ETH worth of collateral, borrowers will be able to borrow 0.75 ETH worth of the corresponding currency). Once a borrow occurs, the LTV evolves with market conditions.

3. What is a good Aave health factor?

Aave health factor is a figure which represents the safety of your deposited or collateralized assets against your borrowed assets. A good Aave health factor is high and indicates safety from asset liquidation. Health factors less than or equal to 1 will trigger liquidation, while that above 1 is safe from liquidation.

Liquidity mining for its users.

1. Gas Optimizations

Significant gas optimizations have been introduced to the Aave V2 protocol. This has created a significant drop in the transaction fees accrued by users of the protocol. In addition, Aave V2 implements native GasToken support to help protocol users further reduce their transaction fees. Here’s a comparison of the gas fees in Aave V1 and V2.

This report shows that Aave V2 lowers gas fees by up to 50%

2. Security

As a non-custodial protocol, Aave doesn’t host the cryptocurrency in the liquidity pool as crypto assets remain in the user’s external wallet. Hence, your assets are safe because they’re in your custody and control and not on the protocol. 

However, like any other open-source, decentralized platform, Aave can still be targeted by threat actors who prey on vulnerabilities emerging from users or other entities. For this reason, the site’s cyber defense strategy must be robust. Aave’s protocol defense system includes high-profile security auditors like OpenZeppelin, Trail of Bits, Peck Shield, and many more. Aave V2’s security builds on that of V1 as the protocol’s design has been simplified, while its architecture has been improved to be more verification-friendly. Aave V2 is also working with leading verification technologies like Certora and auditors like Consensys Diligence to facilitate these security changes.

In addition to these security measures, Aave also has a bug bounty program which incentivizes responsible security disclosure while enhancing the platform’s security. In this program, community members submit reports of bugs or vulnerabilities for the chance to win mouth-watering rewards. Depending on the severity of the disclosed bug or vulnerability, members could earn up to $250,000 in rewards. 

3. Debt Tokenisation

On Aave, tokens are issued to borrowers as the debt positions of users can be tokenized. Receiving tokens representing one’s debt facilitates delegating native credit within the protocol. Users can trade these debt tokens on DEX, and it also helps implement user-specific yield farming strategies and cold wallets’ native position management. 

How does Aave work?

You might wonder how the Aave protocol works. It’s pretty simple. Users who wish to earn interest by becoming lenders deposit their assets into the protocol’s liquidity pool. Community members who wish to borrow receive funds from this pool. To access the liquidity pool, borrowers must first provide over-collateralized assets in ERC-20 tokens. 

On Aave, interest rates for borrowers and lenders are displayed on the network pool. These rates differ depending on the cryptocurrency.

Aave lending rates for lenders are displayed as APY (Annual Profit Yield), while Aave borrowing rates are denoted as APR (Annual Profit Return). Market conditions determine Aave interest rates. 

In this DeFi protocol, borrowers are entitled to two interest rates;

• Variable Interest Rate – Typically associated with in-demand assets. It rapidly fluctuates with market conditions and offers higher risk.
• Stable Interest Rate – Associated with stable assets and is fixed over a short term.

About $5 billion worth of crypto assets is accruing interest on the protocol. To access this pool as a borrower, you must have a certain amount of digital assets to be used as collateral on the platform. It’s critical to mention that if a borrower’s collateral is below the protocol’s stipulated threshold, said collateral will be placed in liquidation and purchased at a discount by other users. 

What to do on Aave

Aave V2 permits its users, developers and community members to perform multiple transactions. Here is a handful of them;

1. Trade

On Aave V2, users can perform several types of trades like:

• Debt Trading

Due to the difficulty in managing fluctuating Aave interest rates, users of the V2 protocol can now trade their debt position from one asset to another. In essence, borrowers could borrow DAI crypto and then change their debt position to USDC whenever USDC becomes cheaper to borrow or has lower borrowing rates. All of this can be effectively carried out in a single transaction. Debt trading in Aave V2 offers community members endless possibilities, including yield and interest rate optimization. 

• Collateral Trading/Swapping

This is otherwise called the collateral swap. On Aave V2, you can trade or swap your deposited assets for any supported cryptocurrencies in the protocol, even if the asset is collateral. In essence, if a user deposits DAI as collateral and wants to switch the asset’s value to another cryptocurrency like FEI, they can attain that in these few steps:

• Go to the Swap section on the Aave protocol.
• Select the asset you want to swap from, with the amount on the left-hand side.
• Select the asset you want to swap to on the right-hand side.
• Check, edit and confirm the swap rate and slippage.
• Send approval and submit the transaction.

To guarantee a smooth collateral swap, ensure you have enough ETH to cover the transaction costs. 

• Margin Trading

Margin trading consists of lending and borrowing. Via Margin borrowing, Aave V2 users can directly take long and short-leveraged positions on supported assets without using third-party services. On the other hand, via Margin lending, lenders can increase the weight of their deposits. 

2. Lend

Aave V2 users can earn passive income on their assets by supplying to the liquidity pool, AKA becoming a lender. The decentralized nature of the platform makes lending more seamless than traditional financial institutions. Lenders can lend by first connecting their Ethereum wallets to the protocol and selecting the asset and the amount they wish to lend. 

There are about 37 Aave-supported cryptocurrencies on the protocol, and there’s no limit to the amount you can lend.

3. Borrow 

Aave V2 users can borrow to their heart’s content as there are several loan packages to choose from, like flash loans and uncollateralized loans. However, a criterion needs to be fulfilled before one can borrow from Aave. Borrowers must first deposit a crypto asset to be used as collateral for the intended loan. The collateral amount must be higher than that of the intended loan. After you’ve selected the asset and amount you intend to borrow, in the ‘Borrow’ section of the protocol, you can select your preferred type of Aave interest rate and then confirm your transaction. However, you can switch between both rates as often as you like. 

4. Repay 

Aave users can repay their loans whenever possible, as there’s no time limit. As long as their position is safe, they can keep borrowing. However, the longer you stay without repaying the loan, the greater the accrued interest that is paid back. Hence, it is advised you repay at your earliest convenience to prevent asset liquidation. To repay the said loan, simply visit the borrow section on your Aave app dashboard and click ‘Repay’ on the borrowed asset. You’ll need to input the amount you want to repay and confirm the transaction. On Aave V2, you can also repay a loan with your collateral. Here’s how;

Repay with collateral.

Aave V2 users can repay their crypto loans with their deposited collateral. Borrowers can do this in these few steps;

• On the dashboard, navigate to the borrowed asset and click repay.
• Choose the ‘Repay with current collateral’ option.
• Select the borrowed asset and the amount you want to repay from the collateral.
• Select collateral.
• Check and edit swap rate and slippage to your preferences.
• Send approval and submit the transaction.

In previous Aave versions, these simple steps took on four separate transactions. However, with the Aave V2, borrowers can repay their debts with collateral in one seamless transaction. 

Final Thoughts

The Aave V2 protocol is ahead of its competitors in functionality and ease. This open-source platform has demystified the intricacies of crypto lending and borrowing by offering transparency, security, less verification, mouth-watering interests, with updated lending and borrowing features at affordable gas rates. Aave V2 is bridging the gap of decentralized P2P payments in the crypto markets. Hence, it is one of the most preferred choices in the DeFi ecosystem. 

FAQs

1. Can you use AAVE as collateral?

AAVE tokens can be posted as collateral on the Aave V2 protocol. The protocol awards users who use AAVE tokens as collateral with increased borrowing limits and discounted gas fees. 

2. How much collateral must I put up to borrow on Aave?

Community members on Aave can borrow up to 80% of their collateralized asset’s value. The Loan to Value (”LTV”) ratio defines the maximum amount of assets that can be borrowed with a specific collateral. It is expressed as a percentage (e.g., at LTV=75%, for every 1 ETH worth of collateral, borrowers will be able to borrow 0.75 ETH worth of the corresponding currency). Once a borrow occurs, the LTV evolves with market conditions.

3. What is a good Aave health factor?

Aave health factor is a figure which represents the safety of your deposited or collateralized assets against your borrowed assets. A good Aave health factor is high and indicates safety from asset liquidation. Health factors less than or equal to 1 will trigger liquidation, while that above 1 is safe from liquidation.

• Vote delegation, where AAVE holders can delegate their voting rights to other addresses.
• Cold wallet voting, which permits users with cold wallets to sign messages and participate in the protocol’s governance
• Liquidity mining for its users.

1. Gas Optimizations

Significant gas optimizations have been introduced to the Aave V2 protocol. This has created a significant drop in the transaction fees accrued by users of the protocol. In addition, Aave V2 implements native GasToken support to help protocol users further reduce their transaction fees. Here’s a comparison of the gas fees in Aave V1 and V2.

This report shows that Aave V2 lowers gas fees by up to 50%

2. Security

As a non-custodial protocol, Aave doesn’t host the cryptocurrency in the liquidity pool as crypto assets remain in the user’s external wallet. Hence, your assets are safe because they’re in your custody and control and not on the protocol. 

However, like any other open-source, decentralized platform, Aave can still be targeted by threat actors who prey on vulnerabilities emerging from users or other entities. For this reason, the site’s cyber defense strategy must be robust. Aave’s protocol defense system includes high-profile security auditors like OpenZeppelin, Trail of Bits, Peck Shield, and many more. Aave V2’s security builds on that of V1 as the protocol’s design has been simplified, while its architecture has been improved to be more verification-friendly. Aave V2 is also working with leading verification technologies like Certora and auditors like Consensys Diligence to facilitate these security changes.

In addition to these security measures, Aave also has a bug bounty program which incentivizes responsible security disclosure while enhancing the platform’s security. In this program, community members submit reports of bugs or vulnerabilities for the chance to win mouth-watering rewards. Depending on the severity of the disclosed bug or vulnerability, members could earn up to $250,000 in rewards. 

3. Debt Tokenisation

On Aave, tokens are issued to borrowers as the debt positions of users can be tokenized. Receiving tokens representing one’s debt facilitates delegating native credit within the protocol. Users can trade these debt tokens on DEX, and it also helps implement user-specific yield farming strategies and cold wallets’ native position management. 

How does Aave work?

You might wonder how the Aave protocol works. It’s pretty simple. Users who wish to earn interest by becoming lenders deposit their assets into the protocol’s liquidity pool. Community members who wish to borrow receive funds from this pool. To access the liquidity pool, borrowers must first provide over-collateralized assets in ERC-20 tokens. 

On Aave, interest rates for borrowers and lenders are displayed on the network pool. These rates differ depending on the cryptocurrency.

Aave lending rates for lenders are displayed as APY (Annual Profit Yield), while Aave borrowing rates are denoted as APR (Annual Profit Return). Market conditions determine Aave interest rates. 

In this DeFi protocol, borrowers are entitled to two interest rates;

• Variable Interest Rate – Typically associated with in-demand assets. It rapidly fluctuates with market conditions and offers higher risk.
• Stable Interest Rate – Associated with stable assets and is fixed over a short term.

About $5 billion worth of crypto assets is accruing interest on the protocol. To access this pool as a borrower, you must have a certain amount of digital assets to be used as collateral on the platform. It’s critical to mention that if a borrower’s collateral is below the protocol’s stipulated threshold, said collateral will be placed in liquidation and purchased at a discount by other users. 

What to do on Aave

Aave V2 permits its users, developers and community members to perform multiple transactions. Here is a handful of them;

1. Trade

On Aave V2, users can perform several types of trades like:

• Debt Trading

Due to the difficulty in managing fluctuating Aave interest rates, users of the V2 protocol can now trade their debt position from one asset to another. In essence, borrowers could borrow DAI crypto and then change their debt position to USDC whenever USDC becomes cheaper to borrow or has lower borrowing rates. All of this can be effectively carried out in a single transaction. Debt trading in Aave V2 offers community members endless possibilities, including yield and interest rate optimization. 

• Collateral Trading/Swapping

This is otherwise called the collateral swap. On Aave V2, you can trade or swap your deposited assets for any supported cryptocurrencies in the protocol, even if the asset is collateral. In essence, if a user deposits DAI as collateral and wants to switch the asset’s value to another cryptocurrency like FEI, they can attain that in these few steps:

• Go to the Swap section on the Aave protocol.
• Select the asset you want to swap from, with the amount on the left-hand side.
• Select the asset you want to swap to on the right-hand side.
• Check, edit and confirm the swap rate and slippage.
• Send approval and submit the transaction.

To guarantee a smooth collateral swap, ensure you have enough ETH to cover the transaction costs. 

• Margin Trading

Margin trading consists of lending and borrowing. Via Margin borrowing, Aave V2 users can directly take long and short-leveraged positions on supported assets without using third-party services. On the other hand, via Margin lending, lenders can increase the weight of their deposits. 

2. Lend

Aave V2 users can earn passive income on their assets by supplying to the liquidity pool, AKA becoming a lender. The decentralized nature of the platform makes lending more seamless than traditional financial institutions. Lenders can lend by first connecting their Ethereum wallets to the protocol and selecting the asset and the amount they wish to lend. 

There are about 37 Aave-supported cryptocurrencies on the protocol, and there’s no limit to the amount you can lend.

3. Borrow 

Aave V2 users can borrow to their heart’s content as there are several loan packages to choose from, like flash loans and uncollateralized loans. However, a criterion needs to be fulfilled before one can borrow from Aave. Borrowers must first deposit a crypto asset to be used as collateral for the intended loan. The collateral amount must be higher than that of the intended loan. After you’ve selected the asset and amount you intend to borrow, in the ‘Borrow’ section of the protocol, you can select your preferred type of Aave interest rate and then confirm your transaction. However, you can switch between both rates as often as you like. 

4. Repay 

Aave users can repay their loans whenever possible, as there’s no time limit. As long as their position is safe, they can keep borrowing. However, the longer you stay without repaying the loan, the greater the accrued interest that is paid back. Hence, it is advised you repay at your earliest convenience to prevent asset liquidation. To repay the said loan, simply visit the borrow section on your Aave app dashboard and click ‘Repay’ on the borrowed asset. You’ll need to input the amount you want to repay and confirm the transaction. On Aave V2, you can also repay a loan with your collateral. Here’s how;

Repay with collateral.

Aave V2 users can repay their crypto loans with their deposited collateral. Borrowers can do this in these few steps;

• On the dashboard, navigate to the borrowed asset and click repay.
• Choose the ‘Repay with current collateral’ option.
• Select the borrowed asset and the amount you want to repay from the collateral.
• Select collateral.
• Check and edit swap rate and slippage to your preferences.
• Send approval and submit the transaction.

In previous Aave versions, these simple steps took on four separate transactions. However, with the Aave V2, borrowers can repay their debts with collateral in one seamless transaction. 

Final Thoughts

The Aave V2 protocol is ahead of its competitors in functionality and ease. This open-source platform has demystified the intricacies of crypto lending and borrowing by offering transparency, security, less verification, mouth-watering interests, with updated lending and borrowing features at affordable gas rates. Aave V2 is bridging the gap of decentralized P2P payments in the crypto markets. Hence, it is one of the most preferred choices in the DeFi ecosystem. 

FAQs

1. Can you use AAVE as collateral?

AAVE tokens can be posted as collateral on the Aave V2 protocol. The protocol awards users who use AAVE tokens as collateral with increased borrowing limits and discounted gas fees. 

2. How much collateral must I put up to borrow on Aave?

Community members on Aave can borrow up to 80% of their collateralized asset’s value. The Loan to Value (”LTV”) ratio defines the maximum amount of assets that can be borrowed with a specific collateral. It is expressed as a percentage (e.g., at LTV=75%, for every 1 ETH worth of collateral, borrowers will be able to borrow 0.75 ETH worth of the corresponding currency). Once a borrow occurs, the LTV evolves with market conditions.

3. What is a good Aave health factor?

Aave health factor is a figure which represents the safety of your deposited or collateralized assets against your borrowed assets. A good Aave health factor is high and indicates safety from asset liquidation. Health factors less than or equal to 1 will trigger liquidation, while that above 1 is safe from liquidation.

• Submitting an ARC (Aave Request for Comment) to the governance forum, which creates an opportunity for fellow token holders to ask questions and leave comments to improve the ARC. This ARC should include a concise description of the intended improvement proposal.
• Creating a snapshot of the intended proposal to gauge the community’s sentiment.
• Submitting an Aave request for improvement proposal (AIP) through a GitHub pull request, which the community then votes on.

The turnaround time of the proposal’s acceptance and execution depends on the type of proposal. Proposals that affect governance consensus require a longer voting time and a higher vote differential, while those affecting protocol parameters require less time and are implemented faster. 

The upgraded Aave V2 offers improved governance features like; 

• Vote delegation, where AAVE holders can delegate their voting rights to other addresses.
• Cold wallet voting, which permits users with cold wallets to sign messages and participate in the protocol’s governance
• Liquidity mining for its users.

1. Gas Optimizations

Significant gas optimizations have been introduced to the Aave V2 protocol. This has created a significant drop in the transaction fees accrued by users of the protocol. In addition, Aave V2 implements native GasToken support to help protocol users further reduce their transaction fees. Here’s a comparison of the gas fees in Aave V1 and V2.

This report shows that Aave V2 lowers gas fees by up to 50%

2. Security

As a non-custodial protocol, Aave doesn’t host the cryptocurrency in the liquidity pool as crypto assets remain in the user’s external wallet. Hence, your assets are safe because they’re in your custody and control and not on the protocol. 

However, like any other open-source, decentralized platform, Aave can still be targeted by threat actors who prey on vulnerabilities emerging from users or other entities. For this reason, the site’s cyber defense strategy must be robust. Aave’s protocol defense system includes high-profile security auditors like OpenZeppelin, Trail of Bits, Peck Shield, and many more. Aave V2’s security builds on that of V1 as the protocol’s design has been simplified, while its architecture has been improved to be more verification-friendly. Aave V2 is also working with leading verification technologies like Certora and auditors like Consensys Diligence to facilitate these security changes.

In addition to these security measures, Aave also has a bug bounty program which incentivizes responsible security disclosure while enhancing the platform’s security. In this program, community members submit reports of bugs or vulnerabilities for the chance to win mouth-watering rewards. Depending on the severity of the disclosed bug or vulnerability, members could earn up to $250,000 in rewards. 

3. Debt Tokenisation

On Aave, tokens are issued to borrowers as the debt positions of users can be tokenized. Receiving tokens representing one’s debt facilitates delegating native credit within the protocol. Users can trade these debt tokens on DEX, and it also helps implement user-specific yield farming strategies and cold wallets’ native position management. 

How does Aave work?

You might wonder how the Aave protocol works. It’s pretty simple. Users who wish to earn interest by becoming lenders deposit their assets into the protocol’s liquidity pool. Community members who wish to borrow receive funds from this pool. To access the liquidity pool, borrowers must first provide over-collateralized assets in ERC-20 tokens. 

On Aave, interest rates for borrowers and lenders are displayed on the network pool. These rates differ depending on the cryptocurrency.

Aave lending rates for lenders are displayed as APY (Annual Profit Yield), while Aave borrowing rates are denoted as APR (Annual Profit Return). Market conditions determine Aave interest rates. 

In this DeFi protocol, borrowers are entitled to two interest rates;

• Variable Interest Rate – Typically associated with in-demand assets. It rapidly fluctuates with market conditions and offers higher risk.
• Stable Interest Rate – Associated with stable assets and is fixed over a short term.

About $5 billion worth of crypto assets is accruing interest on the protocol. To access this pool as a borrower, you must have a certain amount of digital assets to be used as collateral on the platform. It’s critical to mention that if a borrower’s collateral is below the protocol’s stipulated threshold, said collateral will be placed in liquidation and purchased at a discount by other users. 

What to do on Aave

Aave V2 permits its users, developers and community members to perform multiple transactions. Here is a handful of them;

1. Trade

On Aave V2, users can perform several types of trades like:

• Debt Trading

Due to the difficulty in managing fluctuating Aave interest rates, users of the V2 protocol can now trade their debt position from one asset to another. In essence, borrowers could borrow DAI crypto and then change their debt position to USDC whenever USDC becomes cheaper to borrow or has lower borrowing rates. All of this can be effectively carried out in a single transaction. Debt trading in Aave V2 offers community members endless possibilities, including yield and interest rate optimization. 

• Collateral Trading/Swapping

This is otherwise called the collateral swap. On Aave V2, you can trade or swap your deposited assets for any supported cryptocurrencies in the protocol, even if the asset is collateral. In essence, if a user deposits DAI as collateral and wants to switch the asset’s value to another cryptocurrency like FEI, they can attain that in these few steps:

• Go to the Swap section on the Aave protocol.
• Select the asset you want to swap from, with the amount on the left-hand side.
• Select the asset you want to swap to on the right-hand side.
• Check, edit and confirm the swap rate and slippage.
• Send approval and submit the transaction.

To guarantee a smooth collateral swap, ensure you have enough ETH to cover the transaction costs. 

• Margin Trading

Margin trading consists of lending and borrowing. Via Margin borrowing, Aave V2 users can directly take long and short-leveraged positions on supported assets without using third-party services. On the other hand, via Margin lending, lenders can increase the weight of their deposits. 

2. Lend

Aave V2 users can earn passive income on their assets by supplying to the liquidity pool, AKA becoming a lender. The decentralized nature of the platform makes lending more seamless than traditional financial institutions. Lenders can lend by first connecting their Ethereum wallets to the protocol and selecting the asset and the amount they wish to lend. 

There are about 37 Aave-supported cryptocurrencies on the protocol, and there’s no limit to the amount you can lend.

3. Borrow 

Aave V2 users can borrow to their heart’s content as there are several loan packages to choose from, like flash loans and uncollateralized loans. However, a criterion needs to be fulfilled before one can borrow from Aave. Borrowers must first deposit a crypto asset to be used as collateral for the intended loan. The collateral amount must be higher than that of the intended loan. After you’ve selected the asset and amount you intend to borrow, in the ‘Borrow’ section of the protocol, you can select your preferred type of Aave interest rate and then confirm your transaction. However, you can switch between both rates as often as you like. 

4. Repay 

Aave users can repay their loans whenever possible, as there’s no time limit. As long as their position is safe, they can keep borrowing. However, the longer you stay without repaying the loan, the greater the accrued interest that is paid back. Hence, it is advised you repay at your earliest convenience to prevent asset liquidation. To repay the said loan, simply visit the borrow section on your Aave app dashboard and click ‘Repay’ on the borrowed asset. You’ll need to input the amount you want to repay and confirm the transaction. On Aave V2, you can also repay a loan with your collateral. Here’s how;

Repay with collateral.

Aave V2 users can repay their crypto loans with their deposited collateral. Borrowers can do this in these few steps;

• On the dashboard, navigate to the borrowed asset and click repay.
• Choose the ‘Repay with current collateral’ option.
• Select the borrowed asset and the amount you want to repay from the collateral.
• Select collateral.
• Check and edit swap rate and slippage to your preferences.
• Send approval and submit the transaction.

In previous Aave versions, these simple steps took on four separate transactions. However, with the Aave V2, borrowers can repay their debts with collateral in one seamless transaction. 

Final Thoughts

The Aave V2 protocol is ahead of its competitors in functionality and ease. This open-source platform has demystified the intricacies of crypto lending and borrowing by offering transparency, security, less verification, mouth-watering interests, with updated lending and borrowing features at affordable gas rates. Aave V2 is bridging the gap of decentralized P2P payments in the crypto markets. Hence, it is one of the most preferred choices in the DeFi ecosystem. 

FAQs

1. Can you use AAVE as collateral?

AAVE tokens can be posted as collateral on the Aave V2 protocol. The protocol awards users who use AAVE tokens as collateral with increased borrowing limits and discounted gas fees. 

2. How much collateral must I put up to borrow on Aave?

Community members on Aave can borrow up to 80% of their collateralized asset’s value. The Loan to Value (”LTV”) ratio defines the maximum amount of assets that can be borrowed with a specific collateral. It is expressed as a percentage (e.g., at LTV=75%, for every 1 ETH worth of collateral, borrowers will be able to borrow 0.75 ETH worth of the corresponding currency). Once a borrow occurs, the LTV evolves with market conditions.

3. What is a good Aave health factor?

Aave health factor is a figure which represents the safety of your deposited or collateralized assets against your borrowed assets. A good Aave health factor is high and indicates safety from asset liquidation. Health factors less than or equal to 1 will trigger liquidation, while that above 1 is safe from liquidation.

• Aave bridges the gap between lending and borrowing crypto in the DeFi ecosystem. The V2 protocol is an updated version that offers tremendous benefits to lenders and borrowers of cryptocurrencies.
• From fixed rate deposits to uncollateralized loans, rate switching, collateral swaps, and so much more, this Ethereum-based protocol was designed to elevate the skills and pockets of crypto investors.
• Amongst its incredible features, Aave’s competitive advantage is its collateral swap which isn’t synonymous with other decentralised platforms.
• Presently, Aave V2 is one of the leaders among its competitors that offer lending pools, and presently has over $5.7B of value locked up

Here is your Aave crypto review featuring Aave interest rates, how the protocol works, its governance and how you can borrow and repay crypto assets with collateral.

What is Aave?

Aave is a decentralized non-custodial liquidity pool established on the Ethereum blockchain, where users can participate as lenders (depositors) or borrowers. Like similar DeFi protocols, borrowers or depositors provide liquidity to the market and earn passive income via Aave’s stable and variable interest rates. On the other hand, Borrowers borrow in an over-collateralized or under-collateralized fashion. 

Launched in 2017 as ETHLend, Aave has transformed from the underdog P2P money marketplace for crypto borrowing and lending in the DeFI domain to a full pool-based protocol with composable financial services.

ETHLend became Aave in January 2020 after the former witnessed liquidity issues making it challenging to satisfy loan requests. To guarantee the efficiency of the protocol, the developers updated it to a new version, Aave, in December of that year. This version birthed its competitive features, which exploded the popularity and reach of the protocol. Presently, Aave has about $5 billion worth of liquidity locked in seven networks and 13 markets, an exponential increase from its $16.2 million capital raise via ICO in 2017. 

Aave V2 Features

The distinctive features of the Aave V2 give it its competitive edge. Some of them include:

aTokens

Aave has unique tokens called aTokens. These tokens are generated when users of the protocol choose to lend crypto. It is also issued when deposits are made on Aave. aTokens aren’t to be confused with AAVE, the native token of Aave. Assets are called aTokens on Aave. So, if you deposit USDT on Aave, it becomes an aUSDT, likewise other assets like ETH or DAI. The value of aTokens is 1:1 with that of the underlying asset. In the Aave V2, aTokens integrate the EIP 2612 repository for gasless approvals. 

Rate Switching

Rate switching gives the Aave V2 protocol a competitive advantage. While other platforms only offer their users fixed or variable interest rates, Aave offers its community members the opportunity to switch between both rates to get the best interest on their loans and maximize their earning potential. Users can choose and switch between fixed or variable Aave interest rates for a small gas fee. 

Rate switching is such a great feature because while fixed Aave rates follow the average interest rate of the asset within 30 days, variable rates move with the demands and fluctuations in the market. Hence, having the opportunity to switch between both rather than stick to one is game-changing. To switch between the stable and variable interest rates, click the ‘APR Type’ switch button on the dashboard for the asset you wish to apply the rate change. 

Flash Loans

Flash loans have revolutionized the game for Aave and the DeFi ecosystem. The idea behind flash loans was to provide an avenue where users could easily take loans and repay fast without collateral. These loans form borrowing and lending transactions completed within the same block, and borrowers must make repayments before mining a new Ethereum block. Flash loans are uncollateralized and depend on the timing of repayment. 

However, it’s worth noting that the entire transaction fails if loan repayments aren’t made within the same transaction block. Flash loans in Aave DeFi are revolutionary because traders use them to facilitate arbitrage trading. They also use these loans to refinance loans incurred in another protocol and to facilitate collateral swaps.

Community Governance

Aave prides itself on being a fully decentralized protocol governed by its community members. It prioritizes its members so much that it relinquishes power to them. However, to become a power-wielding member of Aave, you must possess the AAVE token. The protocol has over 121,000 token holders who govern the exchange.

Typically, token holders can instigate change on the platform through a three-step process involving;

• Submitting an ARC (Aave Request for Comment) to the governance forum, which creates an opportunity for fellow token holders to ask questions and leave comments to improve the ARC. This ARC should include a concise description of the intended improvement proposal.
• Creating a snapshot of the intended proposal to gauge the community’s sentiment.
• Submitting an Aave request for improvement proposal (AIP) through a GitHub pull request, which the community then votes on.

The turnaround time of the proposal’s acceptance and execution depends on the type of proposal. Proposals that affect governance consensus require a longer voting time and a higher vote differential, while those affecting protocol parameters require less time and are implemented faster. 

The upgraded Aave V2 offers improved governance features like; 

• Vote delegation, where AAVE holders can delegate their voting rights to other addresses.
• Cold wallet voting, which permits users with cold wallets to sign messages and participate in the protocol’s governance
• Liquidity mining for its users.

1. Gas Optimizations

Significant gas optimizations have been introduced to the Aave V2 protocol. This has created a significant drop in the transaction fees accrued by users of the protocol. In addition, Aave V2 implements native GasToken support to help protocol users further reduce their transaction fees. Here’s a comparison of the gas fees in Aave V1 and V2.

This report shows that Aave V2 lowers gas fees by up to 50%

2. Security

As a non-custodial protocol, Aave doesn’t host the cryptocurrency in the liquidity pool as crypto assets remain in the user’s external wallet. Hence, your assets are safe because they’re in your custody and control and not on the protocol. 

However, like any other open-source, decentralized platform, Aave can still be targeted by threat actors who prey on vulnerabilities emerging from users or other entities. For this reason, the site’s cyber defense strategy must be robust. Aave’s protocol defense system includes high-profile security auditors like OpenZeppelin, Trail of Bits, Peck Shield, and many more. Aave V2’s security builds on that of V1 as the protocol’s design has been simplified, while its architecture has been improved to be more verification-friendly. Aave V2 is also working with leading verification technologies like Certora and auditors like Consensys Diligence to facilitate these security changes.

In addition to these security measures, Aave also has a bug bounty program which incentivizes responsible security disclosure while enhancing the platform’s security. In this program, community members submit reports of bugs or vulnerabilities for the chance to win mouth-watering rewards. Depending on the severity of the disclosed bug or vulnerability, members could earn up to $250,000 in rewards. 

3. Debt Tokenisation

On Aave, tokens are issued to borrowers as the debt positions of users can be tokenized. Receiving tokens representing one’s debt facilitates delegating native credit within the protocol. Users can trade these debt tokens on DEX, and it also helps implement user-specific yield farming strategies and cold wallets’ native position management. 

How does Aave work?

You might wonder how the Aave protocol works. It’s pretty simple. Users who wish to earn interest by becoming lenders deposit their assets into the protocol’s liquidity pool. Community members who wish to borrow receive funds from this pool. To access the liquidity pool, borrowers must first provide over-collateralized assets in ERC-20 tokens. 

On Aave, interest rates for borrowers and lenders are displayed on the network pool. These rates differ depending on the cryptocurrency.

Aave lending rates for lenders are displayed as APY (Annual Profit Yield), while Aave borrowing rates are denoted as APR (Annual Profit Return). Market conditions determine Aave interest rates. 

In this DeFi protocol, borrowers are entitled to two interest rates;

• Variable Interest Rate – Typically associated with in-demand assets. It rapidly fluctuates with market conditions and offers higher risk.
• Stable Interest Rate – Associated with stable assets and is fixed over a short term.

About $5 billion worth of crypto assets is accruing interest on the protocol. To access this pool as a borrower, you must have a certain amount of digital assets to be used as collateral on the platform. It’s critical to mention that if a borrower’s collateral is below the protocol’s stipulated threshold, said collateral will be placed in liquidation and purchased at a discount by other users. 

What to do on Aave

Aave V2 permits its users, developers and community members to perform multiple transactions. Here is a handful of them;

1. Trade

On Aave V2, users can perform several types of trades like:

• Debt Trading

Due to the difficulty in managing fluctuating Aave interest rates, users of the V2 protocol can now trade their debt position from one asset to another. In essence, borrowers could borrow DAI crypto and then change their debt position to USDC whenever USDC becomes cheaper to borrow or has lower borrowing rates. All of this can be effectively carried out in a single transaction. Debt trading in Aave V2 offers community members endless possibilities, including yield and interest rate optimization. 

• Collateral Trading/Swapping

This is otherwise called the collateral swap. On Aave V2, you can trade or swap your deposited assets for any supported cryptocurrencies in the protocol, even if the asset is collateral. In essence, if a user deposits DAI as collateral and wants to switch the asset’s value to another cryptocurrency like FEI, they can attain that in these few steps:

• Go to the Swap section on the Aave protocol.
• Select the asset you want to swap from, with the amount on the left-hand side.
• Select the asset you want to swap to on the right-hand side.
• Check, edit and confirm the swap rate and slippage.
• Send approval and submit the transaction.

To guarantee a smooth collateral swap, ensure you have enough ETH to cover the transaction costs. 

• Margin Trading

Margin trading consists of lending and borrowing. Via Margin borrowing, Aave V2 users can directly take long and short-leveraged positions on supported assets without using third-party services. On the other hand, via Margin lending, lenders can increase the weight of their deposits. 

2. Lend

Aave V2 users can earn passive income on their assets by supplying to the liquidity pool, AKA becoming a lender. The decentralized nature of the platform makes lending more seamless than traditional financial institutions. Lenders can lend by first connecting their Ethereum wallets to the protocol and selecting the asset and the amount they wish to lend. 

There are about 37 Aave-supported cryptocurrencies on the protocol, and there’s no limit to the amount you can lend.

3. Borrow 

Aave V2 users can borrow to their heart’s content as there are several loan packages to choose from, like flash loans and uncollateralized loans. However, a criterion needs to be fulfilled before one can borrow from Aave. Borrowers must first deposit a crypto asset to be used as collateral for the intended loan. The collateral amount must be higher than that of the intended loan. After you’ve selected the asset and amount you intend to borrow, in the ‘Borrow’ section of the protocol, you can select your preferred type of Aave interest rate and then confirm your transaction. However, you can switch between both rates as often as you like. 

4. Repay 

Aave users can repay their loans whenever possible, as there’s no time limit. As long as their position is safe, they can keep borrowing. However, the longer you stay without repaying the loan, the greater the accrued interest that is paid back. Hence, it is advised you repay at your earliest convenience to prevent asset liquidation. To repay the said loan, simply visit the borrow section on your Aave app dashboard and click ‘Repay’ on the borrowed asset. You’ll need to input the amount you want to repay and confirm the transaction. On Aave V2, you can also repay a loan with your collateral. Here’s how;

Repay with collateral.

Aave V2 users can repay their crypto loans with their deposited collateral. Borrowers can do this in these few steps;

• On the dashboard, navigate to the borrowed asset and click repay.
• Choose the ‘Repay with current collateral’ option.
• Select the borrowed asset and the amount you want to repay from the collateral.
• Select collateral.
• Check and edit swap rate and slippage to your preferences.
• Send approval and submit the transaction.

In previous Aave versions, these simple steps took on four separate transactions. However, with the Aave V2, borrowers can repay their debts with collateral in one seamless transaction. 

Final Thoughts

The Aave V2 protocol is ahead of its competitors in functionality and ease. This open-source platform has demystified the intricacies of crypto lending and borrowing by offering transparency, security, less verification, mouth-watering interests, with updated lending and borrowing features at affordable gas rates. Aave V2 is bridging the gap of decentralized P2P payments in the crypto markets. Hence, it is one of the most preferred choices in the DeFi ecosystem. 

FAQs

1. Can you use AAVE as collateral?

AAVE tokens can be posted as collateral on the Aave V2 protocol. The protocol awards users who use AAVE tokens as collateral with increased borrowing limits and discounted gas fees. 

2. How much collateral must I put up to borrow on Aave?

Community members on Aave can borrow up to 80% of their collateralized asset’s value. The Loan to Value (”LTV”) ratio defines the maximum amount of assets that can be borrowed with a specific collateral. It is expressed as a percentage (e.g., at LTV=75%, for every 1 ETH worth of collateral, borrowers will be able to borrow 0.75 ETH worth of the corresponding currency). Once a borrow occurs, the LTV evolves with market conditions.

3. What is a good Aave health factor?

Aave health factor is a figure which represents the safety of your deposited or collateralized assets against your borrowed assets. A good Aave health factor is high and indicates safety from asset liquidation. Health factors less than or equal to 1 will trigger liquidation, while that above 1 is safe from liquidation.