DeFi services are gaining popularity as people leverage the power of blockchains and trade crypto assets more than ever before. Most crypto traders store their funds across blockchains and use various wallets for cryptocurrencies.
So, there is an increasing demand for user-friendly crypto assets and portfolio tracking solutions. A DeFi portfolio tracking tool can help you monitor price changes and manage your assets in real time, even on several platforms and wallets.
But there are different crypto portfolio tracking tools, making it difficult to determine the best. This article examines the best DeFi portfolio trackers you can use to manage your wallets.
A DeFi portfolio tracker is software that allows users to track and manage their crypto assets across various exchanges, connect to various blockchains, view real-time price changes, and trade crypto.
When choosing a crypto portfolio tracker, you should consider the security of the app, the user interface, and the number of supported exchanges and coins.
The tracking platform you choose depends on your needs. If you trade cryptocurrency on a large scale, you might need a portfolio-tracking app that allows you to monitor and trade simultaneously.
Some of the best cryptocurrency portfolio trackers are CoinStats, Pionex, Kubera, Coin Tracking, Coin Market Manager, Zerion, Zapper, Accointing, Delta, etc.
While most DeFi portfolio tracker helps you monitor and manage all your cryptocurrency assets in a single platform, some give users a chance to buy, sell and invest on their platforms.
What Is a DeFi Portfolio Tracker?
A cryptocurrency tracker or DeFi portfolio tracker is a service that displays everything you need to know about your assets’ value.
It is a platform (website or mobile app) that allows you to track how your DeFi assets’ values change and manage your investment across all wallets, exchanges, and blockchains in real time.
While large cryptocurrency traders will find DeFi trackers most useful, they will benefit anyone who trades crypto.
Some DeFi tracking services also function as an exchange platform, allowing you to buy and sell cryptocurrency on supported exchanges. The tracker can connect to several exchanges, wallets, and services where you can manage and keep track of all your crypto holdings on one screen.
What To Consider When Choosing a Crypto Portfolio Tracker
There are several things cryptocurrency traders should consider when choosing a portfolio tracker. You should consider safety and security, user-friendly layout, and the number of exchanges or wallets the platform supports.
Security. The decentralized nature of blockchains makes crypto difficult to track once a transaction has been initiated, making it impossible to get back your money. A single hack can leave your wallet vulnerable to fraudsters, making it necessary to choose a tracker that emphasizes security. So, ensure that your investments are protected, especially when you link the tracker to your wallet or bank account. If you are fully connecting your wallet to a tracker, ensure the connection does not expose your assets to smart contract flaws.
Layers and features. The essence of using a portfolio tracker to monitor your coins is to quickly view all of your crypto assets and see changes in real-time. You can only achieve that if the tracking app you choose has a clean layout that displays all the relevant information where you can find them easily. A good DeFi investment tracking app will be user-friendly and show all your assets on the front page or with a single click. Also, the app should show your holdings in your desired fiat currencies. Crypto tracking apps should be easy to operate and understand and have additional features like trading, creating, and managing tokens.
Support a large platform. If you trade different crypto assets, you need a tracking service that features various coins and exchanges. That is why the DeFi investment tracker you choose should be a one-stop platform for all your coins. Also, consider the tracker coin offering if you want to trade all the coins you want and avoid working with multiple exchanges.
Best DeFi Portfolio Trackers
Are you ready to choose the best app for portfolio tracking? This section discusses the best DeFi tracking services available on the market and an analysis of their features.
Merlin by VALK is a revolutionary DeFi portfolio tracker that makes your trading experience as efficient and straightforward as possible. The web app provides an overview of your DeFi placements and yield across several protocols, calculating yield earned, net asset value (NAV) and P&L on selected protocols. Merlin also provides real-time analytics, giving institutional-grade monitoring tools, available via its web application.
Portfolio tracker designed for individual traders, DeFi fund managers and more.
Easy-to-use web app with live charts and graphs that clearly depict an investor’s performance.
The platform supports a wide range of wallets, such as MetaMask Coinbase Wallet, WalletConnect, Portis, Fortmatic, Torus, Ledger and Web3Auth.
Users gain an understanding of their total holdings in USD as well as profit/loss and yield generated.
Get a clear and concise overview of all transactions in your wallet.
API is available for indexation reports and institutional data usage.
One of Merlin’s biggest advantages is that it’s free to use and allows users to create a demo account. This makes it perfect for beginners who want to learn about investment strategies or experienced traders who want an easy-to-use platform on which to track their investments. In short, it has something for everyone and is totally worth signing up for!
CoinStats is the number one decentralized finance tracker or manager you can use to manage all your exchanges in one place. It is an easy-to-use platform and supports more wallets and exchanges than most platforms.
Aside from tracking and managing your crypto asset, you can trade directly on CoinStats and connect to unlimited wallets and exchanges like Binance, MetaMask, Kraken, etc.
CoinStats works on iOS, the web, Android, Mac, and many other platforms.
Offers market insight and tracking for bitcoin and various crypto coins.
Facilitated the trading of cryptocurrencies.
Allows access to crypto news feeds which you can personalize to meet your needs.
You can buy any coin with fiat currency using your credit card.
Great for users that want to manage a large DeFi investment with different cryptocurrencies and DeFi assets.
Provides insights on past transactions.
The CoinStats base version is free and useful if you are not trading many coins. While this free version offers lots of good features, you can get the premium version for a small monthly fee if you do lots of cryptocurrency trading.
Pionex is a crypto exchange platform with built-in trading bots, allowing users to automate trading without checking the market regularly. It is a web-based platform supported by all major browsers, making it accessible to many users.
It has a low trading fee of 0.05% compared with most major exchanges.
Like CoinStats, Pionex allows buying crypto using your bank account.
It has a great user-friendly interface that is easy to navigate.
If you need a live chat, it has a built-in chat service.
Users can switch between light and dark modes and customize time filters on the platform.
It features TradingView charts that display all your activities.
The grid trading bot makes it easy to buy cryptocurrency at a low price and sell when it is high.
Pionex is free to use for all users.
CoinTracking helps you to automatically synchronize your crypto activities on wallets like Coinbase or Binance so that you can securely calculate your capital gains and losses.
CoinTracking features 25 customizable crypto reports and an interactive chart for trades and coins.
Shows gains and loss audit reports.
Users can easily import from more than 100 exchanges automatically via APIs.
It offers direct sync with blockchains and can export in Excel, CSV, PDF, and JSON.
Users can get tax reports for more than 100 countries along with gains, income, mining, etc.
Offers 13 tax methods (FIFO, LIFO, AVXO).
It has a chart history of over 22,000 coins on the platform.
Shows the top coins by trade and the latest prices, along with trends, analysis, and statistics.
Offers data and API encryption to ensure the security of all your data.
2-factor authentication for added protection.
Whether you are just starting or you are a pro, CoinTracking makes managing all your cryptocurrency transactions and filing tax returns easy.
Kubera is one of the best portfolio trackers for cryptocurrency that support decentralized finance assets like Ethereum, Arbitrum, Optimism, Solana, Avalanche, Cosmos, etc., and boasts connections to more than 20,000 banks worldwide.
Let you view and access your crypto accounts in one place.
Help you track and manage your DeFi assets.
Show you the latest price of your NFT connection.
Support a large range of coins.
You can check the latest value of all your assets in one place.
Data security; doesn’t sell data to third parties.
If you want the full subscription, it is available for $15 per month or $150 per year.
6. Coin Market Manager
Coin Market Manager (CMM) is an all-in-one cryptocurrency accounting solution for users focused on growing their assets. Although it doesn’t have a mobile app, users can easily manage all their holdings, trades, and transactions using their mobile devices.
As a tracking service, CMM facilitates easy connection with your preferred exchange and helps you manage all your wallets in one place, automating the import of trade history in a click.
Coin Market Manager is compatible with exchanges like ByBit, BitMEX, Deribit, Binance, BITTREX, etc. You can track storage and live exchange using the innovative dashboard and watch how your asset grows.
It records trade automatically using automated journaling.
Provides auto synchronization via APIs for all your favorite exchanges.
Offers seamless data import to the platform to begin tracking instantly.
You can easily change all non-BTC pair trades to their BTC value.
Display real-time price changes without refreshing the page.
You can access and watch your total crypto net worth across connected exchanges.
Monitor your favorite crypto/fiat trade pair with the fiat watchlist.
Keep track of your profit and loss using the Fiat Summary.
Coin Market Manager has four plans: basic (free), professional (cost $49.99 per month), enterprise ($59.99 per month), and CMM unlocked.
7. Zerion Wallet
Zerion Wallet is a non-custodial wallet for cryptocurrencies that gives users access to many trading opportunities. Instead of being a custodian for your coins like most exchanges, Zerion stores your private keys on your device, not on their server.
You can access your assets using the encrypted private keys stored on their phones, which is the safest way to hold crypto because hackers won’t know that you have assets in a Zerion wallet.
Users with a mobile phone can manage their DeFi and NFT portfolios, connect to any decentralized app, and trade across more than ten networks with one wallet.
Wallets created with Zerion Wallet work with all supported networks compatible with the Ethereum blockchain, including Arbitrum, Polygon, Fantom, Binance Smart Chain, etc.
Users can trade in over ten networks, including Polygon, Ethereum, etc.
You can follow other wallet addresses, NFT collections, and ENS handles.
Zerion has a simple and easy-to-navigate interface.
Displays live price updates.
Ensures the security of your crypto assets with the non-custodian approach.
Lend and borrow tokens to earn interest on the platform.
Support different wallets like MetaMask, Wallet connect, Ledger, etc.
Accointing is an all-in-one cryptocurrency tracker and tax report generator with an easy-to-use interface for beginners and experts.
Users can import all transactions automatically using their wallet address, API, or manual input. Also, you can review and analyze your portfolio losses and gains using this platform.
Support over 300 exchanges and wallets.
Novice and professional crypto holders.
An easy-to-use interface that makes it easier to manage your asset.
Help users track and visualize their cryptocurrency portfolio gains.
Users can automatically import and monitor all their transactions.
Tax generation reports
The dashboard helps you understand your entire crypto investment.
The pricing structure enables users to use the platform for free for up to 25 transactions or upgrade to a higher tier. Their pricing plans are:
Hobbyist plan (costs $79 per year with 500 transfer tax reports).
Trader plan (costs $179 per year and supports up to 5000 transactions).
Pro plan (costs $299 per year with up to 50,000 transactions).
CoinTracker is a crypto-tracking app that automatically synchronizes all your crypto assets in one place so that you can securely calculate your capital gains and losses, investment performance, taxes, etc.
You can connect your wallets like Trezor and Ledger and more than 300 crypto exchanges like Binance, eToro, and Coinbase to the platform and keep track of all your activities.
The platform is secure and uses SSL encryption and two-factor authentication for tokens.
Offers automated portfolio tracking to view your market value, investment performance, and portfolio allocation in real-time and for tax purposes.
Supports more than 300 exchanges and 10000 cryptocurrencies.
Provides tax visibility to help you trade better.
Help users to become fully compliant with cryptocurrency tax rules.
The mobile app lets you track your portfolio and monitor changes in crypto prices.
Help generate tax reports on the fly and support for the US, UK, Canada, India, and Australia with partial support for other countries.
You can download your tax report within minutes.
Delta is the ultimate cryptocurrency tracker that helps you monitor all your crypto coins, including Ethereum, Litecoin, Bitcoin, and more than 7000 other coins.
It is an investment tracker that goes beyond DeFi and provides real-time access to the price changes of stocks, crypto, mutual funds, ETFs, etc.
Delta has been used in more than 115 countries and has had more than 3 million downloads ever since. Users can use Delta to get the latest coin prices and market charts directly in their local currency.
The asset information page gives you a clear overview of all the metrics you need regarding your portfolio holdings.
It has a user-friendly dashboard that is easy to navigate to get specific details.
The tracking app allows users to manage various portfolios and see live performances.
Shows a clear overview of your total portfolio balance, profit, and loss at any time of the day.
Support over 300 cryptocurrencies, stock exchanges like Binance, Kraken, etc., and top indices and commodities.
Delta costs $8.99 per month or $59.99 per year.
AssetDash is an all-in-one crypto asset tracker that features real-time portfolio tracking, software updates, and value change alert for your crypto assets. You can connect your account, track your stocks, NFTs, DeFi, and cryptos, and see real-time changes.
The platform lets you track all your investment across unlimited accounts and assets in a single dashboard.
It has best-in-class NFT portfolio tracking with real-time pricing and performance display.
Support major exchanges like Coinbase, FTX, and Binance.
Support DeFi across ten blockchains, including Ethereum, Avalanche, Binance Smart Chain, and Solana.
You can use the platform anonymously with only an email because it is privacy focused and secure.
Zapper is another decentralized finance portfolio tracking platform that helps users keep track of all their assets, debt, staking, liquidity pools, yield farming, etc., in one place. It is a web3 explorer that allows you to explore as deep and wide as you desire on a single platform.
Also, it has access to multiple blockchains, such as Ethereum, Arbitrum, Polygon, and Optimism.
When you use Zapper, you can connect and share your collections and profiles with others, see what investors are doing on the chain and learn from your connections. Aside from managing your DeFi assets, it features trading through DEX.
A user-friendly dashboard that is easy to navigate.
Support crypto on 11 networks, including Polygon, Fantom, Optimism, Ethereum, BNB Chain, Avalanche, etc.
Users can transfer assets between support blockchains.
You can swap tokens with the basic swap interface.
ApeBoard is a cross-chain DeFi platform that supports adding tokens on several blockchains like Ethereum, Binance Smart Chain, Solana, Polygon, and Binance Exchange. To use ApeBoard, you can input your address, and it will track and display all your DeFi activities across multiple blockchains.
Support multiple blockchains.
Manage all your assets on one platform.
Great user interface.
Ensures the security of your assets.
Autofarm is a DeFi asset tracker and a cross-chain aggregator that enables you to get the return on your investments from yield farming pools. The platform runs on 19 different EVM networks and allows users to track and manage their assets.
It automatically monitors staked assets, token value, APY, and token price over time.
Great user-friendly interface.
Designed to support BSC-based projects.
Crypto is an exciting new investment front for investors ready to increase their assets. To be a smart investor, you must be able to monitor and manage all your assets on one platform. That is why choosing the right DeFi portfolio tracker is crucial for success.
The three things to look out for when selecting a portfolio tracking tool for DeFi are a user-friendly interface, security, and the number of supported exchanges. While you can use many crypto asset trackers, select the best that meets your needs and do your due diligence before you start trading.
Frequently Asked Questions
What Is a Crypto Portfolio Tracker?
A crypto portfolio tracker is an app or a website that allows you to keep track of changes in your coin values and manage your investments. To use one, you must link your wallets and exchanges and view all the changes in your assets in real-time. Crypto asset trackers are useful for large traders, but some are best suited for new investors.
What Is the Best Crypto Portfolio Tracker?
The best DeFi portfolio trackers are Merlin, CoinStats, Pionex, CoinTracker Kubera, etc. A good asset tracker should support multiple exchanges and coins. Also, it should have a good user interface, provide security and integrate seamlessly with different exchange wallets. Select the right crypto asset management tool that matches your needs.
Decentralized finance (DeFi) is one of the fastest-growing sectors of the blockchain industry that uses tools which are also available in traditional finance, making them available to everyone. These tools include unlimited remittance, lending, and borrowing services.
The mechanism behind lending and borrowing in DeFi allows holders of specific assets to lend them to others and earn interest on the loans. Similarly, borrowers of such loans must deposit some form of collateral that is above the value of the loans to protect against price fluctuations.
A major feature of DeFi loans is its anonymity which allows just anyone to take out loans without disclosing their identities to third parties or even passing checks that are similar to what traditional banks have.
This guide explores DeFi loans in their entirety and how they work.
What are DeFi Loans?
When crypto users interact with DeFi protocols to deposit collaterals and borrow digital coins, the borrowed assets are referred to as DeFi loans.
DeFi lending works such that users can access loans without the influence of any intermediary. Lending platforms often allow users to enlist their crypto tokens for lending purposes. With P2p methods, borrowers can access loans from decentralized platforms.
DeFi lending has seen steady growth since its inception due to the underlying technology which is the blockchain. This technology not only eliminates the need for external parties but also ensures that transactions are facilitated seamlessly without any form of obstruction.
Accessing loans on DeFi protocols is pretty easy and involves three basic steps – creating an account in a DeFi platform, creating a crypto wallet, and opening smart contracts. Unlike traditional banks that issue loans to a selected few, DeFi loans can be accessed by almost everyone. This is because DeFi has the main aim of “democratizing” finance, giving the unbanked population unlimited access to financial services.
Borrowers and lenders often benefit from DeFi lending as they have access to margin trading options and long-term investors can lend their assets and stand a chance to earn higher interest rates.
How Do DeFi Loans Work?
When investors store crypto assets in their wallets, they do not accrue any form of interest; the underlying value may only increase or decrease. This forms a reason why DeFi loans were developed.
DeFi loans work in a similar way to traditional finance systems. Investors will have to deposit their tokens into a liquidity pool which often exists in trading pairs such as ETH/USDT, ETH/USDC, or ETH/DAI. And to access loans, borrowers will have to deposit collateral (in the form of tokens) that is above the amount they plan to borrow. This excess amount often covers excessive price fluctuations.
Meanwhile, investors who loan their assets often generate interest on them. The entire lending and borrowing is process now being adopted because:
Investors can earn interest when they lend out crypto assets.
DeFi is anonymous and decentralized since it is built on the blockchain.
Lending pools remain one of the common ways to generate interest on crypto assets.
By over-collateralizing their loans, borrowers can protect their collateral against sudden price drops.
To understand how DeFi loans work, assume an investor plans to borrow ETH from a liquidity pool that contains ETH/DAI trading pairs. This means to access one ETH, the borrower will deposit some DAI that is slightly above the value of one ETH via a smart contract.
At the point of repayment, the borrower reclaims the original value of DAI deposited in the pool. But if the value of the ETH drops before it is repaid or the borrower defaults, the collateral can be liquidated by a certain percentage.
Types of DeFi Loans
There are four types of crypto loans and they include:
Collateralized loans: These are the most common types of loans and work such that deposited cryptocurrency is used as collateral for the loan. In some protocols, over-collateralization is required so that borrowers can access only a specific percentage of the deposited collateral, usually below 90% of the loan-to-value.
Uncollateralized loans: Though not popular, uncollateralized loans operate the same way as personal loans. To qualify, borrowers must fill out a loan application form, verify their identity and complete their creditworthiness review. These loans pose a great risk to lending institutions because the borrowers do not provide collateral that can be liquidated if the borrower defaults.
Crypto line of credit: Some crypto platforms now offer a cryptocurrency line of credit, rather than following the traditional loan pathway. The crypto line of credit is a collateralized loan where users borrow up to a certain percentage of deposited collateral. These loans come with a set of repayment terms and users only pay interest on funds withdrawn.
Flash loans: Flash loans are common in most cryptocurrency exchanges because these loans are borrowed and repaid in the same transaction. These loans are extremely risky and often used to take advantage of arbitrage opportunities in the market, such that a user can buy crypto at a lower price in one market and instantly sell at a higher price in another.
What Do Borrowers Use DeFi Loans for?
Just like traditional banks, borrowers have the right to use their loan proceeds however they deem fit. The same goes for DeFi. When a borrower borrows against crypto, the lender will fund the borrower’s wallet with the loan. However, there are specific use cases for crypto loans and they include:
Buying more crypto: When users borrow against their crypto, they get more cash that can be used to buy more crypto assets. This way, investors can “buy the dip” without using their personal funds to add to their crypto portfolio. Even if the crypto market suddenly falls, the coins that investors have added to their portfolios will be used to meet margin calls in the lending platform.
Crypto real estate mortgage: Investors can use borrowed crypto assets to acquire real estate or other rental properties, allowing them to retain their crypto assets and also enjoy the proceeds of their real estate investment. This also allows the borrower to maintain diverse investment portfolios such as real estate and crypto.
What are the Requirements to Access DeFi Loans?
Besides having some tokens which can be used as collateral, there are other requirements borrowers must meet to access DeFi Loans. These requirements are briefly explained below.
To access crypto loans, it is essential to set aside a specific number of tokens that will serve as a form of collateral. The collateral is what determines the amount of coins a borrower can access. Unlike traditional banking where the credit score of borrowers is considered, DeFi uses the collateral deposited to determine the amount of loan the borrower gets. This entire process makes underwriting quick and simple.
Benefits and Risks of Crypto Loans.
Crypto loans come with their own risks and benefits, indicating that while DeFi has some unique advantages that help it thrive in the crypto industry, it may just not be best proved by crypto lending.
Benefits of Crypto Loans
The benefits of crypto loans are far-reaching and include:
Rapid origination: Unlike traditional finance, crypto loans are swift and accessible by all. There are rarely credit checks or credit histories. DeFi lenders often offer flexible terms and low fees compared to what is obtainable in traditional finance.
More credit access: Borrowers do not need to have traditional bank accounts to have access to crypto loans. Since one-third of the world’s population remains unbanked, DeFi makes it easier for the unbanked to have access to crypto loans.
Retention of crypto assets: When borrowers gain access to crypto loans, they necessarily do not have to sell their crypto. They can get back their coins as soon as the loan is repaid.
Varying loan terms: Crypto loan terms vary between seven days to 12 months.
Diverse use case: Crypto loans have various use cases. They can be used to purchase more crypto or acquire real estate properties.
Risks of Crypto Loans
While crypto loans have so many advantages, certain risks apply. They include
Margin calls: When a borrower’s collateral assets decline rapidly, there is a tendency for the loan to reach a liquidation threshold. This is why borrowers are also required to deposit more collateral.
Cyber attacks: The crypto industry can be prone to security breaches and this can be a major setback to borrowers whose crypto custody has been temporarily transferred to the platform. Borrowers face the risk of losing their tokens should a hack occur.
Top DeFi Lending and Borrowing Protocols
There are a lot of DeFi lending and borrowing platforms in the cryptocurrency ecosystem. Some of them include Aave, MakerDAO, Compound, etc.
Aave is an open-source decentralized protocol that offers users access to liquidity pools where they can lend their tokens to others in return for interest. This platform offers varying interest rates for different yields and interest rates vary for each token.
The interest rates paid to lenders often range around 1% and 3%. While interest rates change regularly, some tokens are associated with much higher yields.
Some reasons to choose Aave include:
Flexible interest options as the rates can be fixed or floating.
Borrowing can somewhat be flexible as Aave also offers flash loans.
Aave offers a risk framework (A+ to D-) that displays the rating for various assets on the platform.
Nexus Mutual offers loan insurance on Aave.
Interest rate: Fixed or variable
Loan types: Custom repayment schedules.
Supported collateralized assets: BTC, ETH, MKR, USDC, etc.
Supported borrower assets: WBTC, USDC, MKR, etc.
Loan to value range: 35 to 80%
Compound is another DeFi protocol with liquidity pools for different assets. When a user lends tokens, they go into the liquidity pools and are merged with other users’ tokens. Borrowers then assess the liquidity pools and later pay what was borrowed with interest rates.
Compound allows users to earn interest in the same token they provide to the lending pool. With interest rates being fixed or variable, earnings differ with tokens.
Below are some features of Compound:
Lenders earn interest in the same token that was offered to the liquidity pool.
Loans can be insured using Nexus Mutual.
Interest rate: Variable
Loan types: Principal plus interest.
Supported collateralized assets: WBTC, ETH, DAI, etc.
Supported borrower assets: WBTC, ETH, YFI, etc.
Loan to value range: 65 to 85%
With MakerDAO, borrowers and lenders combine to generate DAI, a stablecoin that is pegged to the U.S. dollar. The protocols network is built on the Ethereum network and offers users flexible interest rates that range from 0% to 8.75%.
Below are some reasons why lenders choose MakeDAO.
In the event of volatility, users can use asset management tools such as DeFi Saver to ensure vaults are sufficiently collateralized.
MakerDAO vaults can be easily tracked because they are integrated into other asset management tools.
Decentralized Governance: a community of MKR token holders governs the Maker Protocol
Interest rate: Variable
Loan types: Principal plus interest, flash loans.
Supported collateralized assets: BTC, ETH, MATIC, etc.
Supported borrower assets: DAI
Loan to value range: 54 to 99%
Frequently Asked Questions (FAQs)
What do people use crypto loans for?
When borrowers gain access to crypto loans, they use them for several purposes such as arbitrage trading, purchasing more crypto, and diversifying their investment portfolio by investing in crypto mortgages.
Why do crypto borrowing interest rates change?
Interest rates often change in response to the utilization of underlying capital pools. Assuming a vast number of tokens have been earmarked for borrowing, the lending and borrowing rate in relation to the crypto will be quite low. The interest rate becomes popular when the pool gains popularity.
Are there minimum or maximum loan amounts for crypto?
Yes, each lending and borrowing platform has its own minimum and maximum borrowing amount. While minimum loan amounts may be as low as $1,000, maximum amounts may be as high as millions.
Uniswap is categorized as one of the biggest decentralized cryptocurrency trading protocols with applaudable features. Although its setup does not permit the buying and selling of digital currencies, users can efficiently push through with token swaps without the need to create an account.
In 2021, the protocol’s newest protocol for governance smart contracts, Uniswap V3, was released putting the company at the top of other popular automated market maker-based protocols and maintaining relevance.
Uniswap of Uniswap Labs is a decentralized-based exchange built by a developer named Hayden Adams on the 2nd of November 2018. In 2020, the staking and swapping solutions were upgraded to version 2 to support the interchange between ERC-20 tokens on the Ethereum chain. Its version 3 upgrade was announced in May 2021.
Changes and upgrades carried out on the protocol are often agreed upon when investors who hold the native UNI token participate in voting exercises. The UNI token had originally been allocated amongst the earliest users of the exchange. Prior to September 1st 2020, all Ethereum addresses associated with Uniswap were entitled to 400 UNI token claims which are currently valued at $1,400.
The protocol was ranked the fourth biggest by daily exchange flows in October 2020. Estimates made in February 2022 placed the market capitalization of the protocol’s native token UNI at $6.6 billion.
Some of the company’s investors include crypto-based ParaFi Capital, VC company Paradigm, New York-based capital market firm Union Square Ventures, and Andreessen Horowitz.
The UNI token
UNI is the native token of the Uniswap ecosystem which was launched in September 2020. Having shown dedication and support for decentralization, Uniswap made a move to launch its native token to improve community participation and management. The token utilized an “airdrop” pattern of allocation, awarding all Uniswap-associated Ethereum wallets with 400 UNI tokens. So far, airdrop has been used as a means of compensating users and investors.
Uniswap Pros and Cons Explained
Exposure to newer tokens: Before coins and tokens can be listed on exchanges, they must undergo a rigorous vetting process in order to minimize the risk of investing in dubious tokens. This means investors will have access to tokens that are still in the rollout phase.
However, the case is different with Uniswap. Coins and tokens are not subjected to lengthy vetting and new projects can be listed directly on Uniswap. This way, investors can swap to newer tokens even before they are listed on centralized exchanges.
KYC is not required: Uniswap is a decentralized protocol and does not require its users to comply with Know Your Customer (KYC) verification to access its services. Because users do not have to go through lengthy verification, onboarding on Uniswap is much easier. This also promotes anonymity.
Opportunity to earn rewards: Uniswap V3 gives users the opportunity to provide liquidity to its concentrated liquidity pools and adequate rewards in return. Due to its flexibility and efficiency which allows for multiple tier fees, Uniswp V3 has some competitive sides over V2. The liquidity pools are what facilitate trades, enabling users to convert one or more tokens for another.
Uniswap is communo-centric: Uniswap is one of the most unique protocols because it focuses on its community governance system, giving UNI token holders an opportunity to vote on public proposals in a system that is relatively non-complex. All changes to the Uniswap protocol are mostly done on-chain. This enhances immunity as all upgrades made can never change.
Uniswap Cons Explained
Safety risks: With Uniswap, the vetting period for new coins and tokens are not lengthy, paving a way for scam tokens to make it to the exchange. This poses a serious risk for investors who may likely swap their tokens for fake ones.
Fiat currency cannot be moved on or off the protocol: Because Uniswap is decentralized, fiats cannot be moved on or off the platform. The only platforms that support the movement of fiats are centralized exchanges.
Extremely high gas fees: Uniswap runs on the Ethereum network, and this means transaction costs are highly dependent on gas fees. Higher cost of transactions, especially when the network is congested, can be a turn-off for users.
Technical difficulty: Interacting with decentralized exchanges such as Uniswap can be extremely technical, making them a turn-off for new and intermediate investors. In addition, tracking liquidity provision on decentralized exchanges is technically tricky and may require the use of third-party data analytics tools.
Features of Uniswap
Uniswap has some features that are ear-catchy to investors. These features include:
Token swap: Uniswap’s swap feature allows for ERC-20 tokens to be exchanged among themselves using Ethereum gas fees. The UNI native token can also be purchased on the platform.
Collective governance: Uniswap’s governance policy allows for collective control and decision-making. No singular entity has power over another.
Liquidity pools: Uniswap V3 has concentrated liquidity pools where users who plan to earn passively can add liquidity and earn rewards.
Self-custody: Unlike centralized exchanges where users transfer the custody of their private keys to a platform, Uniswap is non-custodial, giving users total control of their private keys. This ensures the users remain protected if a hack or bankruptcy occurs.
Access to various tokens: Uniswap is home to both new and existing tokens, giving investors access to diverse coins to choose from.
How Secure is Uniswap?
Uniswap trading platform is highly secure and safe. It is a decentralized exchange with its liquidity reserve set up on Ethereum. Its decentralized features keep it away from third-party interference, which makes it less susceptible to hacks targeted at a central regulatory server. All tokens offered to the trading platform’s liquidity reserves are sealed by a crypto contract and designed free from alterations. Hackers may need details of your account to flexibly access tokens in the reserve.
The major possible risk that you can face when utilizing Uniswap trade is the risk related to user mistakes. This is because all crypto contracts and codes have been run through critical examinations and are confirmed to be safe.
Nonetheless, tokens offered to the liquidity reserves are at risk of being lost on Uniswap, as it is with diverse liquidity reserve exchanges.
Assets Available on Uniswap
There are over a billion assets that can be traded on Uniswap effortlessly, as it is compatible with Ethereum-based assets. Here is a list of some of the well-known coins that can be purchased on Uniswap:
Ethereum-based Basic Attention Token (BAT)
Native token Uniswap (UNI)
Wrapped Bitcoin (WBTC)
Dollar-pegged DAI (DAI)
Wrapped Ethereum (WETH)
How to Efficiently Utilize Uniswap
The process involved in using Uniswap is quite clear and easy to understand. First, an Ethereum wallet like Portis, Metamask or Coinbase is required alongside a tiny portion of ETH to cover the charges of gas needed. Thereafter, you can access the Uniswap official website through the browser set up on your preferred wallet and commence swapping.
Cost of Transactions on Uniswap
The protocol only requires 0.3% charge for token switch activities, and contrary to how it operates in a third-party supported protocol, these charges are not taken by Uniswap. The realized funds are used to compensate liquidity providers as the fee for their contribution.
Customers who need to explore a protocol that offers a variety of token choices, reserves, and a comparable low trading cost -intensified in its V3- may consider Uniswap a more flexible option. Of course, there seem to be a few vulnerabilities attached to some of its flexibility but this does not seem to count much given its high ranking amongst other exchanges.
With that stated, it is necessary to underline that only Ethereum-supported tokens can work with the existing version of Uniswap.
Given the global limitations that tend to hinder certain protocols in the digital space, it is commendable that Uniswap has continued to be on top of the game. The decentralized protocol has gained its stand in offering premium decentralized services to users. Nonetheless, its development does not stop at this stage as creators are committed to building on the enhancement of customers’ experience.
Frequently Asked Questions (FAQs)
How do investors earn passively on Uniswap?
There are several ways investors earn passively on Uniswap and they include liquidity provision, yield farming, and airdrops.
Is Uniswap the best place for investors?
Uniswap is ideal for experienced and tech-savvy investors who want to make extra income. The wide range of assets the platform supports and the concentrated liquidity pools make it a top choice for crypto investors.
Does Uniswap require KYC?
Uniswap is a decentralized protocol and does not require users to complete KYC verification.
‘Hodling’ is a cryptocurrency slang that works in the context of buying Bitcoin and other digital assets, and holding them without selling even when the market goes down or becomes extremely volatile. This slang encourages investors to hold cryptocurrencies in the event that the prices will surge.
In April 2013, the price of Bitcoin stood at $130, and by December of the same year, it surged to $950. To date, HODL remains the tenet of several crypto evangelists.
To date, 2020 remains one of the toughest years humanity has faced, all thanks to the COVID-19 pandemic. It also marks the success of the decentralized finance (DeFi) branch of the cryptocurrency industry.
The pandemic prompted some financial institutions to shut their doors, resulting in some limited access to financial services. Aiming to “democratize” finance, DeFi opened doors to financial services in a permissionless and global manner.
The returns of Hodling crypto and deploying these assets in DeFi vary. Hence, it is important to analyze the returns accumulated across strategies over a period of time. This guide will analyse returns from two common cryptocurrencies, Bitcoin and Ethereum, and two popular DeFi protocols – compound and Uniswap.
What Does HODLing Crypto Mean?
HODL is a trading strategy that is popular among cryptocurrency traders and serves as a long-term approach when investing in cryptocurrency. In the cryptocurrency market, emotions can run high – for example there is the fear of missing out (Fomo), fear, uncertainty and doubt (FUD), and other profit-eroding emotions. To curtail these emotions, crypto maximalists often hold on to the crypto assets in hopes that after a bear market, there might be a bullish run.
Generally, HODL is associated with cryptocurrency investors. However, the buying and selling strategy that it represents is not limited to the cryptocurrency industry alone.
What Does DeFi-ing Mean?
The decentralized finance ecosystem has become increasingly popular just two years after its development. With compound, Uniswap and Tokensets being among the most popular examples, DeFi is now a commonly sought-after stream of passive income among crypto enthusiasts. At the same time, Ether, the native token of the Ethereum blockchain, is the major collateral in many DeFi protocols, especially when it comes to lending and borrowing.
DeFi was created to address issues that traditional financial institutions have not solved over the years. Some of these issues include:
Reducing the opacity in the financial system. This benefit is often overlooked as many think traditional institutions are more transparent. In the real sense, DeFi protocols are open-source, their users can see the codes, total liquidity and other details. Financial institutions have several blind spots and users rarely get to ask questions.
Eliminating the presence of intermediaries. Centralization is associated with the traditional financial system, and this often comes with the presence of intermediaries, resulting in higher transaction fees and lower transaction speed. But DeFi is changing all of this by promoting efficiency and lower transaction fees.
Increasing accessibility to finance: According to data from the World Bank, only about 5.3 billion people are banked, indicating that the global financial system is not fully accessible. This, understandably, has caused friction in several cohorts. But DeFi is ensuring that everyone with an internet connection has access to finance. People use DeFi not only to send funds internationally but also to access loans and other financial applications.
While these benefits stand out, there are certain risks associated with DeFi. These include smart contract risk, oracle risk, regulatory risk, scaling risk, and custody risk.
Returns of HODLing Bitcoin
Since its inception over a decade ago, Bitcoin has remained the topmost coin with the largest market capitalization. The first Bitcoin transaction occurred on January 12th, 2009, when Satoshi Nakamoto sent 10 Bitcoins to Hal Finney, a cryptographer.
In 2009, Bitcoin traded at $0 and slowly crawled up to $0.09 by July 17th, 2010. By April 2011, it traded at $1 and reached $29.60 in June, indicating a 2,960% return for investors who held their Bitcoin.
By 2013, Bitcoin reached $13.28 and further increased to $230 in April. It later tanked to $68.50 by July 2013. At the end of 2013, BTC soared to $1,237. This represented over 1705% returns for HODLers.
By early 2015, Bitcoin traded at around $315, before rebounding gradually. By May 2017, Bitcoin hovered between $1,000 to $2,000. By December, BTC soared to $19,345 and fluctuated for the next few years.
The Covid-19 pandemic in 2020 affected the global economy, with Bitcoin trading at $6,965 and rising to $19,157 by November. At the end of 2020, the price climbed to $29,000, showing a 416% increase in profit at the beginning of the year for Bitcoin HODLers.
Bitcoin reached an all-time high (ATH) of $68,000 in November 2021. By May 2022, BTC tanked by over 50%, trading at $28,305. At the time of writing, Bitcoin is trading at $19,500. It is of utmost importance that investors check out market conditions and also do their own research before investing.
How to calculate returns on crypto investment
To measure returns on crypto investment, the returns on investment (ROI) formula is used. The formula indicates growth in value over a certain period.
ROI = (FVI – IVI) / IVI * 100%
FVI = Final value of investment
IVI = Initial value of investment
Let’s say an investor bought $1000 worth of Bitcoin a year ago. If the market climbs by 35% and the investor sells their asset for $1350, then the return on investment will be:
(1350-1000)/ 1000 * 100% = 35%
Returns on HODLing Ethereum
Ethereum is an open-source blockchain network and Ether is its native token. Invented by computer programmer Vitalik Buterin (among other co-founders) in 2015, Ethereum has had its own share of volatility.
Throughout 2015, Ether traded below $1. Ethereum broke through $1 in January 2016, reaching $12 by July 2016. By the end of 2017, Ethereum traded at $772, representing over 6000% returns for HODLers since January 2016.
2021’s NFT boom and major speculations influenced the cryptocurrency market and Ethereum reached an all-time high of $4000 by May and another all-time high of $4,800 in November 2021, bringing high returns to long-term HODLers. More recently, crypto enthusiasts witnessed the worst winter in 2022, with Ethereum shedding over 70% of its value.
DeFi Returns: Compound
Compound is a decentralized blockchain protocol that runs on the Ethereum network. Compound, which exists as a decentralized application, enables decentralized finance (DeFi) features directly on the Ethereum blockchain. The protocol has its native ERC-20 token called COMP.
Serving as a stream of passive income, compound incentivizes participants with its COMP token. This way, users are often rewarded when they interact with compound protocol through borrowing, withdrawing or repaying loans. This incentivization helps to promote engagement on the platform.
COMP has a fixed supply of 10 million, with 4.2 million of the tokens earmarked for distribution to users of the protocol over a 4-year period. About 795,000 COMP tokens have also been reserved for incentivizing community governance.
By visiting Compound.finance, users can interact with the protocol directly using a dApp browser or regular browser equipped with wallets such as MetaMask and Trust wallet. Users who connect with the protocol can access collateralized loans or generate interest by depositing the tokens for lending.
With Ethereum serving as collateral, other tokens up for borrowing include USDC, DAI and USDT. Others include wrapped BTC, BAT, TUSD, and UNI. At the time of writing, Compound is offering an APY of 2.26%, 2.80%, and 3.00% for every USDC, DAI, and USDT staked in the protocol.
For instance, if a user stakes $500 worth of USDT for a specified period, such a user will expect an interest of $15 if APY stands at 3.00%. Between December 2018 and October 2019, Compound earned a return of 7.1%. By 2019, interest rates began to increase just as MakerDAO increased its stability fees.
DeFi Returns: Uniswap
Uniswap is a decentralized exchange protocol for digital assets. As an on-chain exchange, users can trade tokens which are often matched from asset reserves supplied by liquidity providers. These liquidity providers can earn returns on trading.
Getting returns from Uniswap depend on three factors:
The prices of assets at the time of supply and withdrawal.
The size of the liquidity pool.
The trading volume.
It is always necessary for investors to understand that future returns on Uniswap often vary from the time when liquidity is provided due to the impact of high crypto volatility. This means there is a risk of losing money during large and sustained movements in the price of underlying assets in comparison to HODLing them.
To understand how Uniswap returns work, take a look at this example:
If a liquidity provider adds 10,000 DAI and 100 WETH to a pool (with a total value of $20,000), the liquidity pool will be a combination of 100,000 DAI and 1,000 ETH. As such, the amount supplied is approximately 10% of the liquidity pool. The liquidity provider receives a guaranteed 10% LP fees tokens from the pool. Fees on Uniswap vary, but range from 0.05% to 1% per pair.
Again, if an investor supplies $10,000 to a liquidity pool consisting of DAI-ETH tokens, this means the supply will be in an equal proportion of $5,000 DAI and $5,000 ETH. The returns will vary for investors who provided liquidity to the pools at different times due to the changes in DAI and ETH prices. Liquidity providers also are exposed to impermanent loss. Impermanent loss occurs when there is a difference between the value of the liquidity provider’s tokens and the underlying tokens that if they weren’t paired in the pool.
Frequently Asked Questions
What is the state of the DeFi ecosystem?
Since 2020, the DeFi ecosystem has experienced significant milestones, with users seeing it as an opportunity to earn passive income. DeFi hit a significant milestone in August 2020 as the market surpassed $7 billion in value locked in several protocols. Currently, over $62 billion of value is locked in the ecosystem. Similarly, DeFi applications are on a steady rise, significantly increasing the value of Ethereum as most dApps are accommodated on the Ethereum network.
Who first used the term HODL?
The true identity of the person who coined the word HODL is still not known. However, the original misspelling of the word occurred in a post by the user “GameKyuubi” on the Bitcointalk.org online forum on December 18, 2013.
Is DeFi risky?
Generally, cryptocurrencies are risky investments. This is because the market is extremely volatile, with the ability of coin prices to rise and fall rapidly. This, in turn, affects the interest rates investors who provide liquidity to decentralized protocols or stake tokens in crypto vaults stand to earn.
What is staking?
Staking is the process where users stake (lock) a particular amount of crypto tokens in a vault for a period of time in order to earn rewards which are usually restaked pending the expiration of a vesting period.
What are popular examples of DeFi protocols?
Notable examples of DeFi protocols include Compound, Balancer, Aave, Uniswap, Pancakeswap, etc.
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:
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 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 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.
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.
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%
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.
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;
On Aave V2, users can perform several types of trades like:
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.
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 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.
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.
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.
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.
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.
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.
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.
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.
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.
Ethereum (ETH) staking is the procedure of locking up a specific quantity of the native cryptocurrency of the Ethereum blockchain for a particular duration as part of committing to upholding the security of the blockchain network. In return for their risk-taking efforts, the investor will be eligible for monetary rewards in the form of interest on their staked coins (denominated in Ether).
Investors who stake their cryptocurrencies (does not necessarily have to be Ethereum specifically) are called “stakers” or “validators”. These groups of individuals will be responsible for processing transactions, storage of data, as well as introducing blocks to Ethereum’s novel proof-of-stake (PoS) consensus model, known as the Beacon Chain.
A total of 32 ETH is required for an individual to run their own validator. Nonetheless, there are plenty of other ways to stake your Ethereum. Such examples would include liquid staking, staking at exchanges, or participating in a staking pool.
All in all, the process of Ethereum staking not only acts as an invaluable opportunity for validators to generate passive income for themselves, but it is also an innovative approach to safeguard the next iteration of Ethereum’s blockchain network, popularly termed “Ethereum 2.0”. In particular, Ethereum 2.0 will be the next phase of Ethereum that operates on the Beacon Chain.
The concept of Ethereum staking has become an increasingly popular topic amongst cryptocurrency enthusiasts because it provides all users with a chance to help secure the network alongside earning rewards via validating data and transactions. At the point of writing, 11% of all Ethereum that is being circulated in the ecosystem has been staked, and this percentage of Ethereum is estimated to be worth more than US$22 billion.
Having mentioned that, VALK provides a well-rounded ecosystem comprising decentralised tools to help crypto investors invest better. For instance, their Smart DeFi portfolio tracker, Merlin, could calculate the efficacy of an investment strategy almost immediately by determining the total yield and profit/loss generated from a portfolio in United States dollars (USD) currency.
An Introduction to Ethereum
Ethereum is a blockchain protocol created in July 2015. Miners, in turn, were able to use this blockchain to develop their very own cryptocurrency called Ether, which is also known as Ethereum. Since then, Ethereum began to gain loads of traction amongst investors as storing it on a blockchain provided significant public confidence that Ethereum is a very secure cryptocurrency. Nevertheless, it is essential to remember that a vast amount of energy is required to secure the network via a Proof-of-Work consensus mechanism. Whilst Ethereum remains a popular cryptocurrency globally, most computers (or nodes) running on the Ethereum blockchain are situated in the US.
On that note, there has been an announcement involving the launch of an upgraded Ethereum 2.0 to the protocol on the 15th of September 2022. This significant update essentially involves converting Ethereum into a more scalable asset to support more transactions at one point in time, improve the system’s security, and ensure this field becomes more environmentally friendly as a whole. Therefore, most exchanges are not banning Ethereum staking or withdrawing stakes until the merging of Ethereum and Ethereum 2.0 has been finalised.
With that, it is incredibly vital first to comprehend the implications of Ethereum staking before the launch.
A Brief Overview of How Ethereum Staking Works
In essence, staking is the process of locking up 32 Ether into the blockchain network as part of activating the validator software. Once that is completed, the validator will be tasked with authenticating transactions, storing data, and adding new blocks to the Ethereum 2.0 blockchain. As a result, the validator will contribute to maintaining the legitimacy and security of the Ethereum blockchain for the rest of the public and thereby be rewarded with new Ether coins for their work. In other words, Ethereum staking can be considered a public good for the ecosystem.
Things to Consider When Staking Ethereum
There are various ways in which investors can choose to stake Ethereum. Nonetheless, it is imperative to consider numerous factors on top of investment yields.
To begin with, specific staking platforms are custodial, meaning that investors would not be able to control their cryptocurrencies in a private wallet. Additionally, investors could expect the majority of services to charge a fee for Ethereum staking. As an example, Stakefish charges 0.1 Ether for individuals to stake 32 Ethers. Conversely, Coinbase mandates a 25% commission rate before investors are able to receive their financial rewards. With that, it would be clear that different exchange platforms may have varying methods of charging investors for staking Ethereum, though some, such as Binance, do not charge any fees at all.
On top of the factors mentioned above, the returns on investment for staking Ethereum typically differ depending on the amount of Ether that has been staked across the blockchain network. Though at the moment, the most common approach of Ethereum staking generates between 3% and 5% in annual percentage yield (APY).
VALK has created a Smart DeFi Portfolio Tracker known as Merlin to provide investors with a comprehensive overview of their DeFi positions across protocols. This includes liquid staking solutions for Ethereum, such as Lido Finance. Merlin’s tools, in turn, are vital to help investors improve their investment strategies.
Ethereum Staking Benefits
There are a number of good reasons why investors may consider Ethereum staking, with notable reasons detailed below.
A passive income opportunity
In general, Ethereum staking follows a very similar principle as utilising a money market account or depositing your hard-earned savings into a traditional fixed deposit account, which involves putting up one’s tokens to keep a blockchain secured. Once you have consented to the terms and conditions as well as deposited your Ether, no extra work will be required on your end, and you may be able to earn high-interest rates for your efforts.
To provide some context, the mean return for Ethereum staking currently hovers at 4%. This means that if an investor were to stake one Ether, they would be eligible to earn an extra 0.04 Ether by the end of a single financial year, thereby yielding 1.04 Ether during the process. Not to mention, some cryptocurrency experts are predicting that the investment returns for Ethereum staking may rise to 10% to 15% once the Ethereum 2.0 upgrade has been completed.
To help investors who have dedicated crypto assets to liquid staking services, VALK has developed a dashboard known as Merlin, which offers in-depth analytics of their investment positions. Merlin calculates PNL related to chosen protocols like Compound, Lido, Uniswap, Aave, and V3.
A sense of community
Like any other cryptocurrency, Ethereum completely depends on the blockchain network to operate and function properly. Hence, if you are a person who is enthusiastic about Ethereum and have faith in its value, Ethereum staking provides you with a rare opportunity to take part in the network and enhance the cryptocurrency’s worth.
A relatively low-risk investment
In comparison to other existing cryptocurrencies, Ethereum staking is known to be stable due to its global usage, popularity, and high level of security. Consequently, this gives Ethereum a significant unfair advantage over most of the other digital assets.
Downsides of Staking Ethereum
Despite the numerous upsides that investors could enjoy with Ethereum staking, it is important to be well aware of the disadvantage and risks associated with this activity:
Investors will not be allowed to withdraw
At the moment, no validators will be able to withdraw their staked Ether until Ethereum 2.0 has been completed and released. Considering no one can be too sure of when the release date will be, it is, therefore, crucial to acknowledge that staking your Ethereum prior to the upgrade means that you will be locking up your cryptocurrency assets until after the new consensus model is launched.
Risk of losing your Ethereum stake
Although the benefits of Ethereum staking look exceptionally tempting for some, there is an inherent risk of losing the entire sum due to counterparty risk, governmental intervention, or even a network hack.
Potential validator penalties
Although this is more of a rarity than the norm, the Ethereum blockchain could penalise stakers for going offline or for validating fraudulent transactions. Should such an event occur, a penalty fee will be charged, in which specific amounts of the staked Ethereum could be wholly or partially removed. This, as a result, adversely impacts an investor’s APY.
Risks associated with custodial staking
Investors must understand that with Ethereum, the majority of their staking options are likely to be custodial. This means their Ether will not be in their private wallet but with a staking service or exchange platform. On that note, any cryptocurrencies not in a personal wallet will be vulnerable to third-party hacking, counterparty risks, or any unwelcome issues.
How To Get Started with Staking Ethereum?
If you feel like you are prepared to embark on Ethereum staking, you will likely realise that the process of getting started is surprisingly straightforward!
It will be necessary for you to buy Ethereum if you are looking to stake it. Fortunately, you will be able to purchase it very quickly via crypto exchanges.
Select an Ethereum staking method that suits you best
In short, there are many ways for one to stake their Ether, including via:
The top crypto exchanges offering Ethereum staking, such as Binance, Kraken, eToro, and Coinbase, provide investors with many conveniences. Generally speaking, you will likely find little to no minimum staking requirements. Nevertheless, the cons associated with staking on exchanges would be its service fees as well as security.
Operating a validator
One can earn more through running a validator, but a minimum of 32 Ether will be required to get started. Meanwhile, particular hardware is needed, further increasing the initial expenses. Besides that, the Ethereum validator will need a strong internet connection to handle the computing prowess.
Staking your Ethereum to a pool essentially means that you will be pooling your funds with other validators to hit the 32 Ether needed to operate a validator. The pros of this structure are that the financial entry barrier has been dramatically minimised. At the same time, investors still get the privilege to enjoy the majority of the benefits of running a validator. Furthermore, all investors will be allowed to keep their cryptocurrencies because this is a non-custodial arrangement.
Liquid staking usually exchanges your Ether tokens for a receipt token, which investors can store in their private wallets to prove their ownership. This, in turn, can be used to trade whilst their original token proceeds to generate passive income. In addition, investors are not obligated to perform extra actions to stake Ethereum. On that note, notable liquid staking platforms include Kraken, Binance, and Ankr. In most scenarios, liquid staking offers investment yields of around 4%, which is nearly equivalent to alternative Ethereum staking approaches.
In a nutshell, Ethereum staking is a simple way for cryptocurrency enthusiasts to earn passive income on the Ether they already possess. Regardless, it remains imperative to note that, like every other investment, all individuals should conduct their own research and only invest in crypto tokens that they can afford to lose.
Frequently Asked Questions (FAQs)
How much ETH will I earn from staking?
The investment returns from Ethereum staking broadly vary based on the amount of Ether staked across the Ethereum blockchain network. At the point of writing, the typical procedures of Ethereum staking bring investors around 3% to 5% APY.
Is it a good idea to stake my Ethereum?
Staking is a popular go-to option to earn passive income, though investors must consider certain aspects of this option before making a decision. For example, Ethereum staking mandates the locking up of your Ether for an unspecified period. Nevertheless, if you come up with a long-term investment thesis, Ethereum staking may be the right choice for you.
Can you lose ETH by staking?
There will always be a risk associated with Ethereum staking. Still, staking has been generally perceived to be safe as the most plausible chances are likely to impact returns rather than your crypto wallet itself negatively.