Aave also allows those will idle assets to earn a relatively safe return on capital from lenders, whose rates are determined by a curve.
We're in the phase of the market where there's a lot of retail inbounds but not enough education about the Ethereum ecosystem and DeFi.
So, let's break down the basics of some of the top protocols.
First on deck: Aave (@AaveAave), an Ethereum-based money market protocol.
A 🧵
Aave also allows those will idle assets to earn a relatively safe return on capital from lenders, whose rates are determined by a curve.
Users would hold BTC, ETH, and other assets (including many ERC-20 tokens) with no expectation of a native yield or dividends.
ETH, for instance, was long just an asset for transaction fees, as was Bitcoin.
Users can deposit a variety of assets as collateral, then use that collateral as ammo to borrow other assets to be used in DeFi or beyond.
Loans are *overcollateralized*.
1. Those looking for steady, relatively safe yield on idle assets.
2. Those that want to leverage their assets by borrowing against their holdings, then trading and spending the loan to achieve utility beyond the rate they pay.
- Find idle assets that can be lent out on Aave
- Deposit said assets
- Earn a per-block, pro-rata interest paid for by those that borrow your assets (assets are pooled, then used) from the protocol
- Find inactive, useless asset
- Deposit it into Aave
- Enable it as collateral
- Borrow desired assets from protocol
- Use borrowed assets for trading, yield farming, spending, etc.
Shorting:
A user can borrow an asset from Aave, sell it, buy it back when the price is lower, then pocket the delta.
This works because the loan is denominated in the asset(s) borrowed.
ETH natively does not produce yield.
It can be used as collateral to borrow assets that *can* earn yield.
Assuming you can earn 15% on USDC and borrow @ 5%, borrowing USDC at a 200% collat. ratio will allow for an effective yield of 5% on ETH.
Say a user is holding Wrapped Bitcoin and wants something on-chain or IRL, though doesn't want to get rid of their WBTC exposure.
A user can collateralize their WBTC, buy what they want, then pay back the loan with income or other assets to reclaim their WBTC.
Aave pioneered flash loans, a concept where anyone can borrow any amount of capital within a single block for a number of use cases.
Did a thread here in the past.
https://t.co/FRn5Pj2TFk
If you've been following DeFi or Ethereum over the past few months, you've likely heard the term "flash loan" mentioned again and again.
— Nick Chong (@n2ckchong) October 29, 2020
This new DeFi primitive has been at the core of a number of economic exploits and arbitrages.
A thread on the basics of flash loans - \U0001f447 pic.twitter.com/uOQC2tzlYl
- A user borrowed 2,048,000 USDC from dYdX
- Traded that USDC for 2,028,367 DAI in Curve's Y pool
- Traded that DAI for 2,064,182 USDC in Curve's sUSD pool
- Paid dYdX back + 2 wei
All in one block...
Profit: 16,182 USDC
Cost: $60 in gas
I'll cover:
- Interest rates
- Terms
- Liquidations
- aTokens
The more an asset is utilized, the higher the rate lenders earn and borrowers pay.
The borrow rate is always above the deposit rate.
Here's the borrow rate model for USDC / USDT.
To mitigate unexpected spikes in utilization affecting the rate one pays on their loan, users can lock in a fixed rate, so they can manage risk properly.
This rate can readjust based on market conditions.
Aave has a number of loan terms that dictate how much one can borrow, at what point they are liquidated, and how much they pay when they are liquidated.
These terms are determined by a risk team, who assess market conditions to minimize risk to protocol collateral.
Unlike traditional loans, Aave loans are liquidated autonomously when a user's loan-to-value ratio falls below certain values.
A large enough drop in the value of one's collateral will allow users to bid the collateral, sell it, then pocket a bonus.
aTokens are yield-bearing assets that accrue interest in real time, allowing one to watch their deposited assets grow by block.
It can be used by other developers to build interesting applications and use cases.
For instance...
@APWineFinance: APWine allows users to trade unrealized yield
etc.
aTokens, flash loans, etc. can all be used in tandem with other contracts to create use cases.
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Always. No, your company is not an exception.
A tactic I don’t appreciate at all because of how unfairly it penalizes low-leverage, junior employees, and those loyal enough not to question it, but that’s negotiation for you after all. Weaponized information asymmetry.
Listen to Aditya
And by the way, you should never be worried that an offer would be withdrawn if you politely negotiate.
I have seen this happen *extremely* rarely, mostly to women, and anyway is a giant red flag. It suggests you probably didn’t want to work there.
You wish there was no negotiating so it would all be more fair? I feel you, but it’s not happening.
Instead, negotiate hard, use your privilege, and then go and share numbers with your underrepresented and underpaid colleagues. […]
Always. No, your company is not an exception.
A tactic I don’t appreciate at all because of how unfairly it penalizes low-leverage, junior employees, and those loyal enough not to question it, but that’s negotiation for you after all. Weaponized information asymmetry.
Listen to Aditya
"we don't negotiate salaries" really means "we'd prefer to negotiate massive signing bonuses and equity grants, but we'll negotiate salary if you REALLY insist" https://t.co/80k7nWAMoK
— Aditya Mukerjee, the Otterrific \U0001f3f3\ufe0f\u200d\U0001f308 (@chimeracoder) December 4, 2018
And by the way, you should never be worried that an offer would be withdrawn if you politely negotiate.
I have seen this happen *extremely* rarely, mostly to women, and anyway is a giant red flag. It suggests you probably didn’t want to work there.
You wish there was no negotiating so it would all be more fair? I feel you, but it’s not happening.
Instead, negotiate hard, use your privilege, and then go and share numbers with your underrepresented and underpaid colleagues. […]
Fake chats claiming to be from the Irish African community are being disseminated by the far right in order to suggest that violence is imminent from #BLM supporters. This is straight out of the QAnon and Proud Boys playbook. Spread the word. Protest safely. #georgenkencho
There is co-ordination across the far right in Ireland now to stir both left and right in the hopes of creating a race war. Think critically! Fascists see the tragic killing of #georgenkencho, the grief of his community and pending investigation as a flashpoint for action.
Across Telegram, Twitter and Facebook disinformation is being peddled on the back of these tragic events. From false photographs to the tactics ofwhite supremacy, the far right is clumsily trying to drive hate against minority groups and figureheads.
Declan Ganley’s Burkean group and the incel wing of National Party (Gearóid Murphy, Mick O’Keeffe & Co.) as well as all the usuals are concerted in their efforts to demonstrate their white supremacist cred. The quiet parts are today being said out loud.
The best thing you can do is challenge disinformation and report posts where engagement isn’t appropriate. Many of these are blatantly racist posts designed to drive recruitment to NP and other Nationalist groups. By all means protest but stay safe.
There is co-ordination across the far right in Ireland now to stir both left and right in the hopes of creating a race war. Think critically! Fascists see the tragic killing of #georgenkencho, the grief of his community and pending investigation as a flashpoint for action.
Across Telegram, Twitter and Facebook disinformation is being peddled on the back of these tragic events. From false photographs to the tactics ofwhite supremacy, the far right is clumsily trying to drive hate against minority groups and figureheads.
Be aware, the images the #farright are sharing in the hopes of starting a race war, are not of the SPAR employee that was punched. They\u2019re older photos of a Everton fan. Be aware of the information you\u2019re sharing and that it may be false. Always #factcheck #GeorgeNkencho pic.twitter.com/4c9w4CMk5h
— antifa.drone (@antifa_drone) December 31, 2020
Declan Ganley’s Burkean group and the incel wing of National Party (Gearóid Murphy, Mick O’Keeffe & Co.) as well as all the usuals are concerted in their efforts to demonstrate their white supremacist cred. The quiet parts are today being said out loud.
There is a concerted effort in far-right Telegram groups to try and incite violence on street by targetting people for racist online abuse following the killing of George Nkencho
— Mark Malone (@soundmigration) January 1, 2021
This follows on and is part of a misinformation campaign to polarise communities at this time.
The best thing you can do is challenge disinformation and report posts where engagement isn’t appropriate. Many of these are blatantly racist posts designed to drive recruitment to NP and other Nationalist groups. By all means protest but stay safe.