What is Aave?
Aave is a decentralized finance protocol built on Ethereum that enables the creation of money markets. Aave allows users to borrow digital assets, as well as lend out their crypto into the platform’s liquidity pools and earn interest on the deposits in the form of aTokens.
Aave offers a wide range of debt-based products. Being based on the Ethereum blockchain, Aave accommodates ETH, a number of stablecoins such as USDC and DAI, and quite a few ERC-20 tokens. The Aave protocol also introduces a special feature called ‘flash loans’ – a short-term loan mechanism which happens to be the very first uncollateralized loan option within the DeFi ecosystem.
What is the AAVE token?
AAVE is the acronym for the native governance token of the Aave platform, which was formerly known as LEND. The Aave protocol has a completely decentralized autonomous organization (DAO) governance model. Back in 2017, Aave was launched with the native token LEND; however, the very first Aave improvement proposal of its DAO voted in favor of a token migration to the AAVE token, which was subsequently done very recently in September 2020.
The AAVE crypto is structured upon the ERC-20 standard. The Aave protocol is governed by AAVE token holders, who can ensure collateralized liquidity, and have the power to suggest new changes to how the platform is run and vote on management decisions. Additionally, with the responsibility to propose, approve, or deny changes to the protocol, AAVE token holders control the levers for risk and rewards in Aave’s money markets.
About 80% of the fees the Aave platform collects are used to burn AAVE tokens. This suggests that the price of AAVE tokens will go further up with time. As of March 2021, there are over 12 million AAVE tokens in circulation.
How Does the Aave Protocol Work?
As mentioned before, the Aave protocol allows users to earn interest on their digital assets by depositing them into liquidity pools upon the platform. These liquidity pools are also from where borrowers can take out crypto loans as a stable rate loan, a variable rate loan, and of course, a flash loan.
To take out a loan from Aave, a user has to over-collaterize, which means they have to lock up a collateral worth more than the value of the loan. This secures the funds in the protocol in case they fail to pay back their loan, or if the value of the deposited collateral falls. Borrowers must always make sure that the value of their collateral never drops too far below a set level; if they fail to do so, they risk getting liquidated. When a loan gets automatically liquidated, a portion of the borrower’s deposited collateral gets sold to repay a part of the debt, as well as any penalties and fees.
However, with flash loans, users can take out loans instantaneously without any collateral, but only if the liquidity is returned to the platform within one single Ethereum transaction block. In case that doesn’t happen, the whole transaction is reversed and all the actions performed until that point are undone.
By depositing their crypto tokens on Aave, a user provides liquidity to Aave’s token pools, which sets in motion the automatic minting of ‘aTokens’ – or Aave interest bearing tokens. Now, these aTokens are also ERC-20 tokens, pegged 1:1 to the value of the underlying asset deposited in the Aave protocol – basically they act as a claim to whatever amount of liquidity a user has provided. The aTokens are automatically minted upon deposit, and burned when redeemed.
ATokens accrue interest in real time directly into a user’s wallet. When a user holds aTokens, they can continuously earn interest on the assets deposited – which can also be redeemed at any point of time. Additionally, aTokens also permit holders a percentage of the fees collected from the Aave flash loans.
The aTokens can be freely stored and traded, and each aToken is based on a particular crypto asset. For instance, if user X deposits ETH to Aave, they will get freshly minted aETH tokens in exchange. Similarly, if user Y deposits DAI to Aave, they will get aDAI tokens. However, these aTokens all earn different interest rates in accordance to the lending supply and borrowing demand for their underlying assets. The more a particular asset gets utilized, the higher its interest rate and also the associated risk.
Aave Price Prediction: How Will It Perform in 2021?
The Aave protocol is currently one of the most hyped up and promising projects within the DeFi sector. It’s true that Compound Finance comes up as a direct competitor to Aave, but the fact that Compound has only USDT as a usable asset, where Aave has a much broader range of tokens to offer, gives Aave a clear advantage over Compound. Plus, for first-time users, Aave provides some great incentives, such as the profitable interest rates.
The biggest factor working in Aave’s favor is that it’s one of the clear leaders when it comes to flash loans. Moreover, since the AAVE tokens are bought and burned through the trading fees the platform earns, it serves as a positive price driver. All of these constituents lead experts to believe that the excitement surrounding Aave, as well as the AAVE token’s price, will only continue to grow strongly in the coming days.
As of March 2021, the price of AAVE stands at a little over $330. Aave price predictions for 2021 suggest that the price of the coin would go up to about $500 by the end of the year. Aave price predictions further state that the price per coin might go up to $1000 by 2025, and $1500 by 2028.
What Are Aave Perpetual Swaps, and Why Should You Trade Aave Perpetual Swaps?
An Aave perpetual swap is essentially a type of Aave futures contract. Futures, in case you were unaware, are derivatives contracts that allow a user to buy or sell an underlying asset at a predetermined price, and have a fixed date of expiration. For instance, an Aave futures trader would bet on the price of AAVE at a certain point of time in the future, so by predicting whether the price of AAVE would go up or fall at a certain time and date in the future, traders can either go for a long position to buy AAVE at a fixed price upon the expiry of the contract in the future, or they can opt for a short position and agree to sell AAVE at a fixed price when the Aave futures contract expires.
Now, the word perpetual literally means permanent, or timeless. As that title suggests, the biggest difference between Aave futures and Aave perpetual swaps is that Aave perpetual swaps do not have expiry dates. Which means, if you open a long or short position in the Aave perpetual swaps market, you can basically hold on to that position for an infinite amount of time, unless your position gets automatically liquidated, of course. An Aave perpetual swap aims to provide returns of the underlying spot market in AAVE with the added advantage of leverage. You also get to avoid any additional trading expenses, except for the funding costs.
You can find out more about perpetual swaps here.
If you are wondering whether to trade Aave perpetual swaps or not, you should know that they have a lot more benefits compared to the spot trading of AAVE. Below we have compiled a list of advantages you get when you trade Aave perpetual swaps:
- There’s No Need to Hold AAVE Itself:
Aave perpetual swaps allow you to bet on the price of AAVE without owning the crypto itself, so they enable people who cannot trade AAVE due to location-specific issues to bet on the coin’s price.
- Margin Trading and Leveraging:
As per the rules of regular Aave trading, you get to earn profits if you buy low and sell high. However, this trading strategy only works when the value of Aave rises up. Moreover, leverage trading is not an option in spot trading.
Aave perpetual swaps, on the flip side, allow for both margin trading and leverage. When you trade Aave perpetual swaps, it’s likely you’d make a relatively higher profit out of a small initial investment, as the leverage is high and traders can open or close market positions with only a fraction of their personal balance.
On Delta Exchange, you can trade AAVE against BTC and USDT with up to 20x and 50x leverages respectively.
Hedging allows traders to safeguard their investments; if you trade Ether perpetual swaps, you can hedge their future revenues, and lower any uncertainties when it comes to the anticipated cash flow.
- Reduced Exposure to Risks Associated With AAVE’s Price Volatility:
When you trade Aave perpetual swaps, you get to manage financial risks by locking in a fixed price upfront. This gives you a layer of protection against any fluctuations in the price of AAVE, as you can continue to pay that fixed price even when AAVE’s price shifts. In fact, you can even benefit from a projected price drop through short selling – which is betting against AAVE’s price.
- You Can Commit to Multiple Trades At Once:
Since to trade Aave perpetual swaps you have to deposit only a margin of AAVE’s actual price, you can engage your funds in other, short-term trades instead.
How to Start Trading on Delta Exchange?
Starting futures trades on Delta Exchange is quite easy. To trade Aave perpetual swaps on Delta Exchange, just follow these simple steps:
- Register: This takes less than 1 minute and requires only a verified email address. No other KYC is needed.
- Fund Your Delta Exchange Wallet: Only bitcoins are accepted in the Delta Exchange Wallet. A unique BTC deposit address will be generated for you when you register.
- Convert BTC to USDC: All futures and perpetual contracts on Delta Exchange are margined and settled either in BTC or USDC. For USDC settled contracts, use the currency converter to change BTC to USDC.
- Make Your First Trade: Now you are all set to trade on Delta Exchange! With Delta Exchange, you can not only just trade Aave perpetual swaps, but also several altcoins like Ripple, Litecoin, BNB coin, etc. And of course, you can trade Bitcoin futures, Ethereum futures, and more!
Finally, to trade Aave perpetual swaps, once you have created your account on Delta Exchange and made your first deposit, just head over to Aave perpetual swaps. On Delta, you can try out AAVE-BTC perpetual swaps and AAVE-USDT perpetual swaps. You can find out more about the AAVE-BTC contract specifications here, and about the AAVE-USDT contract specifications here.
And there you have all you need to know to trade AAVE in 2021! We do hope this post helps you make better investment decisions!
Happy Aave perpetual swaps trading!