With the unprecedented growth of the decentralized finance (DeFi) industry, Aave (AAVE) network is becoming a market leader and occupies a prime position in the cryptocurrency lending and borrowing sector.
Read on to learn everything you need to know about Aave, the most trending DeFi Protocol. We will discuss how Aave works, its advantages over other protocols, and where and how to buy Aave tokens or borrow in Aave.
Step 1: Select a Crypto Exchange
You can purchase AAVE tokens on several cryptocurrency exchanges. Visit the market page on CoinStats to view the exchange platforms supporting AAVE. Compare the exchanges’ security, user experience, fee structure, supported coins, etc., to choose the one that has the characteristics you need, such as affordable transaction fees, an intuitive platform, round-the-clock customer service, etc. Also, consider whether the cryptocurrency exchange is regulated by the Financial Industry Regulatory Authority (FINRA), etc., and allows you to buy AAVE using your preferred payment method.
Step 2: Create an Account
After you’ve chosen a cryptocurrency exchange that fulfills all your criteria, the following step is to register with the exchange using a valid email or mobile number. A link will be sent to your email, and you must click it to verify your email. Once the account is activated, you must create an elaborate password, and you’re good to go.
Some exchanges have strict KYC and AML requirements, and in order to get verified, you must provide personal information such as:
- Full name
- Residential address
- Date of Birth
- ID Document
In some cases, you might also need to upload a selfie or undergo video verification to finalize the verification process.
Once your identity verification is complete, it’s recommended to activate two-factor authentication (2FA) for an extra layer of security.
Step 3: Deposit Funds
The next step is to deposit funds into your account. Many crypto exchanges support fiat currency such as USD, EUR, etc. Simply select your preferred deposit method, such as a bank transfer, wire transfer, credit or debit cards, e-wallets, PayPal, etc., and the currency you wish to deposit. Tap on “Deposit Funds,” enter the amount you want to deposit, and click “Deposit.”Some deposit methods are extremely fast, while others, depending on the amount, require confirmation from authorities. Remember to evaluate the fees of different deposit methods since some have larger fees than others.
Linking your debit card to your crypto account is advantageous as it lets you make instant or recurring purchases, but be aware that it attracts an additional fee.
It’s usually free to make a bank transfer from your local bank accounts, but you should still double-check with your exchange.
AAVE can be traded for another currency like Ethereum or a stablecoin like Binance USD (BUSD); the trading pairs vary between exchanges, and you must search for AAVE on the spot market to select a pair from the list of available trading pairs.
Step 4: Buy AAVE
Follow the steps below to place a market order to buy AAVE instantly at the current market price:
- Click the search bar, enter AAVE, and select “Buy AAVE” or the equivalent.
- Choose the payment method, the currency you wish to use, and input the amount of AAVE or the fiat amount to be spent. Most exchanges will automatically convert the amount to show you how many AAVE tokens you’ll get.
- Double-check the transaction details and click “Confirm.”
- The AAVE tokens will be displayed in your balance once the transaction is processed.
You can also place a limit order indicating that you want to buy AAVE at or below a specific price point. Your broker will ask you the number of coins you wish to acquire and the maximum price you’re ready to pay for each once you’ve placed an order. The coins will only appear in your wallet if your broker fulfills your order at or below your requested pricing. The broker may cancel your order at the end of the day or leave it open if the price increases over your limit. If you’re planning to keep your newly purchased coins for an extended period, we highly recommend securely storing them in a hardware wallet.
To trade AAVE on spot markets, go to the Trade page and search for the AAVE pairs (AAVE/USD or AAVE/USDT). Select the trading pair and check the price chart. Click “Buy AAVE,” select the “Market,” enter your amount or choose what portion of your deposit you’d like to spend by clicking on the percentage buttons. Confirm and click “Buy AAVE.” Congratulations on adding AAVE tokens to your crypto portfolio!
Step 5 (Optional): Store AAVE
While your AAVE tokens can be stored in your brokerage exchange wallet, experts highly recommend storing your precious coins away from exchange wallets, as those might be susceptible to hacks and interference.
We highly recommend creating a private wallet with your own set of keys. Depending on your investing preferences, you might choose between software and hardware wallets:
If you’re looking to trade AAVE regularly, software or hot wallets provided by your selected crypto exchange will suit you. The strength of software wallets lies in their flexibility and ease of use. A software wallet is the most easy-to-set-up crypto wallet and lets you easily interact with several decentralized finance (DeFi) applications. However, these wallets are vulnerable to security leaks because they’re hosted online. So, if you want to keep your private keys in a software wallet, conduct due diligence before choosing one to avoid security issues. We recommend a platform that offers 2-factor authentication as an extra layer of security.
Examples of software wallets include CoinStats Wallet, MetaMask, Coinbase Wallet, Trust Wallet, and Edge Wallet, amongst others.
Hardware or cold wallets are usually considered the safest way to store your cryptocurrencies as they offer offline storage, thereby significantly reducing the risks of a hack. They are secured by a pin and will erase all information after many failed attempts, preventing physical theft. Hardware wallets also let you sign and confirm transactions on the blockchain, giving you an extra layer of protection against cyber attacks. These are more suitable for experienced users who own large amounts of tokens.
Ledger hardware wallets are arguably the most secure hardware wallets letting you securely manage your digital assets. The Nano X is designed for advanced users and offers more storage space and advanced features than Ledger Nano S, designed for crypto beginners.
A hardware wallet is more expensive than a hot wallet, with prices ranging between $50 – $200.
Examples of cold wallets are Trezor Model T, Ledger Nano X, CoolWallet Pro, KeepKey, Ellipal Titan, and SafePal S1, amongst others.
Step 6 (Bonus Step): Track AAVE Tokens
The crypto market is volatile, and if you hold multiple assets, managing your portfolio could get tricky. Utilizing a portfolio tracker will help you keep track of your AAVE tokens and all your crypto investments from one platform at all times. CoinStats offers one of the best crypto portfolio trackers in the market; you can find more information here.
You can also monitor the profit, loss, and liquidity of AAVE across several exchanges on CoinStats.
CoinStats supports over 250 cryptocurrency exchanges and over 7,000 cryptocurrencies. It offers charting tools, analytical data, advanced search features, and up-to-date news. Here you have the opportunity to connect an unlimited number of portfolios (wallets and exchanges), including:
- Trust Wallet
- Bitstamp and 500 others.
To connect, go to the CoinStats Portfolio Tracker page and:
- Click Add Portfolio and Connect Wallet.
- Click the wallet you want to connect to (e.g., Ethereum Wallet).
- Input the wallet address and press Submit.
Where to Buy Aave (Kraken Recommendation)
There are several ways to buy Aave.
Kraken is highly recommended due to the lowest transaction fees among all of the crypto exchanges. Kraken is also rated one of the most secure and trusted crypto exchanges in the world.
The protocols are rigorously tested and are specifically designed to provide maximum security to your digital assets.
To purchase Aave using Kraken, simply follow the steps described in the previous chapter. You can fund your account using fiat currency.
How to Buy AAVE Using CoinStats
CoinStats is another great way to buy Aave. All you have to do is create an account with CoinStats. You can log in to your Coinbase account or create a new profile altogether. Search for Aave and click on Trade Aave. It should be noted that you can Trade Aave after linking your CoinStats profile to your Binance Smart Chain Wallet.
You also have the option of making payments through fiat currency; however, this option is presently limited to US users.
Things to Note When Trading Aave
After completing your purchase, you can begin trading right away or hold on to your token reserves. As the market is volatile, with crypto values changing now and then, you might be inclined to take advantage of the price fluctuations in the short term.
You can also convert the additional Aave tokens you have gained as profit into a stablecoin such as USD Coin and Tether. In addition, some brokers allow converting your Aave profits directly to fiat currency such as US Dollars and Euros.
While trading, especially if you execute multiple trades per day, it’s important to choose a broker with relatively low transaction fees.
Finally, you should make sure to use stablecoins as collateral due to the volatility of crypto. If the value of your collateral drops drastically (beyond the given threshold), it can lead to liquidation and added fees.
Things to Consider When Choosing an Exchange to Buy Aave
There are a few things to consider while choosing among cryptocurrency exchanges:
- Reputation: This is perhaps the most important factor to consider. Exchange platforms are usually appreciated for their reputation, e.g., Binance.
- Liquidity: You should also consider liquidity – how easily Aave is converted into cash or other coins. High liquidity will mean few fluctuations in price.
- Transaction Fees: As discussed in the previous chapter, you should consider exchanges with low transaction fees, such as Kraken, to make profitable transactions.
- Wash Trading: Beware of wash trading on the platform.
- User Reviews: User reviews are extremely valuable sources of information about products and services. The same applies to crypto exchange platforms. Consider platforms with positive customer experiences and ratings.
Brief History of AAVE
Aave was established in November 2017 by developer Stani Kulechov who originally launched Aave as ETHLend, with the native token LEND, after an initial coin offering (ICO) raised $16.2 million. The Crypto-backed peer-to-peer platform ETHLend would connect cryptocurrency lenders and borrowers, making it possible to borrow assets and for lenders to earn interest.
ETHLend was later adjusted and rebranded as Aave. The Aave Protocol officially launched on the Ethereum blockchain on 9 January 2020, offering instant-access ‘flash loans’ to users without the need for collateral.
Aave Protocol has been described as a “decentralized, open-source, and non-custodial money market protocol” where depositors can earn interest by providing liquidity to lending pools. The key difference was Aave’s algorithmic money market function versus ETHLend’s individually matching borrowers with suitable lenders. In Aave’s liquidity pool system, crypto loan assets are pooled together, and interest rates are determined algorithmically. If assets are in short supply, interest rates are set higher; conversely, interest is set lower if there is a plentiful supply of an asset.
Aave introduced new digital products and services, i.e., Aave Pocket, Aave Lending (SaaS), Aave Gaming, Aave Custody, and Aave Clearing.
How Does AAVE Work?
As an open-source no custodial lending protocol, Aave facilitates loans in a variety of cryptocurrencies. Under the system’s requirement, lenders have to deposit their funds into liquidity pools, and borrowers can borrow from such liquidity pools. The borrowers, however, must deposit a collateral amount greater than the amount they borrow in another cryptocurrency. The Aave protocol has an algorithm that automatically liquidates a borrower’s collateral if its value falls below a specified ratio to safeguard against volatility.
Aave provides uncollateralized loans, i.e., flash loans, enabling you to borrow instantly and easily, without collateral, provided that the liquidity is returned to the pool within one transaction block. As Aave spokesperson explains: “Flash loans enable a customized smart contract to borrow assets from our reserve pools within one transaction on the condition that the liquidity is returned to the pool before the transaction ends. If this does not happen, the transaction is reversed to effectively undo the actions executed until that point, guaranteeing the safety of the funds in the reserve pool.”
Aave is audited and secured – each loan on the network is managed by a smart contract, verified by third-party auditors. Lenders and borrowers can interact with the user interface client, API, or directly with the smart contracts on the Ethereum network. The interest rates are flexible and are freely agreed upon by both parties due to the degree of trust afforded.
Tokens: AAVE and aTokens
Aave’s AAVE token offers discounts on transaction fees to users who submit AAVE as collateral, while users who borrow AAVE are not charged a fee. AAVE holders also gain governance rights over the Aave network.
The second type of Aave protocol’s tokens is aToken. The Aave protocol allows users to earn interest in real-time because deposits are tokenized as aTokens, issued at a 1:1 ratio upon the deposit of assets into Aave’s liquidity pool. Interest is also paid in aTokens, but they are converted back to the asset when lenders withdraw their funds.
While there is a wide selection of cryptocurrencies out there, not all of them are profitable. There is considerable risk involved in any form of cryptocurrency investment.
Aave, however, has several advantages to be considered while thinking about investing. Among its key advantages are:
- Aave is a decentralized lending system that allows clients to borrow, lend and earn interests on their crypto assets without intermediaries.
- The entire platform is highly secure. It operates based on a Safety Module protocol, preventing the system from experiencing a capital shortage. When there aren’t sufficient assets to pay back lender deposits, AAVE tokens saved in the safety module are sold to cover the deficit.
- Aave has a great range of inventive decentralized finance products, i.e., flash loans, rate switching, etc.
- It has a wide range of cryptocurrencies to lend/borrow from.
- Aave has competitive rates.
The main purpose of the AAVE token is governance. Stakeholders can vote on requested changes and whether new cryptocurrencies should be added to the platform for lending and borrowing. To vote, you need to have AAVE tokens or stkAAVE (Staked AAVE) tokens. The tokens themselves represent a financial share of AAVE.