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How To Use Aave: A Step-by-step Guide

Publish by Quang Phan at 05 October 2021

The DeFi market is becoming hotter than ever, especially with the recent incentive programs from multiple blockchains. The TVL (Total Value Locked) across all Dapps (Decentralized applications) is currently $83B, and Aave already impressively accounts for 15% of it.

Moreover, compared to other top-notch lending protocols like Compound or MakerDAO, Aave is receiving the highest revenue. On a daily basis, Aave is earning about $2.34M, while Compound and MakerDAO are getting only $1M and $142K, respectively. In fact, the daily revenue of Aave is currently only behind Uniswap.

How to use Aave? How to take advantage of Aave’s features and potentially earn profit? This article will give you clear answers for these questions.

Aave Overview

Aave is a liquidity-based Lending protocol. Originated as a decentralized peer-to-peer lending platform (ETHLend), Aave revamped to a pool-based one.

Instead of forming a direct relationship between lenders and borrowers, Aave involves the participation of both through liquidity pools, thus diversifying the options and automating the process.

Some notable points before using Aave

Aave currently supports 3 markets: Aave native market, AMM market, and Aave Polygon market. You can switch between them for the best experience.

Aave Protocol has been audited by Trail of Bits, Open Zeppelin, Consensys Diligence, Certik, Peckshield, Certora and Sigma Prime.

In addition, Aave holds a bounty program that rewards people who find bugs in their product/smart contract. Therefore, using Aave is extremely secure.

Aave provides the “Flash Loan” feature that can diversify users’ options to trade, including their collateral assets.

If you borrow on Aave, you have to constantly track your collateral position to avoid being liquidated.

When you deposit assets into Aave, you will receive the corresponding aToken. The number of aToken in your wallet will increase over time; hence, you can earn interest by simply holding that aToken in any wallet.

Preparation for trading on Aave

What are the prerequisites for trading on Aave?

First, users need to download and create an account (optional) on Coin98 Wallet.

Coin98 Mobile Wallet version X is available for download at:

Read the detailed instruction on how to use Coin98 Wallet or watch the tutorial video below to install the Coin98 Mobile Wallet:

Coin98 Extension: Follow these steps to install the Coin98 Extension Wallet on Chrome:

Step 1: Find and select Coin98 Extension Wallet on Chrome Web Store;

Step 2: Click Add to Chrome;

Step 3: A pop-up notification will be displayed on the screen, please read it carefully. To approve, click Add extension.

Step 4: To use the extension, click the extension icon to the right of the address bar. If the Coin98 Extension Wallet shows up in the drop-down menu, it has been installed and enabled successfully.

How to create an Ethereum wallet on Coin98 Wallet?

Before using Aave, users need to create an Ethereum wallet. Users can create a new Ethereum wallet on Coin98 Wallet or import an existing Ethereum wallet from other wallets to Coin98 Wallet. Creating a Multi-chain wallet on Coin98 Wallet will also include an Ethereum sub-wallet.

For you: How to create a Multi-Chain wallet on Coin98 Wallet

Preparing ETH as gas fee

Aave is now available on Ethereum and Polygon. Therefore, in order to use Aave, users must have ETH or MATIC in their wallets. In this article, I will use Aave on Ethereum, therefore I have to prepare ETH as gas fee.

Users can buy ETH or MATIC on a centralized exchange such as Binance, FTX, Gate,... and send it to the respective wallet address on Coin98 Wallet.

How to use Aave with Coin98 Extension Wallet

Connect the Coin98 Extension Wallet to Aave

Step 1: Go to the Aave website here: https://app.aave.com/markets

Step 2: Click “Connect” at the top-right corner to connect to the Coin98 Extension Wallet.

Step 3: Choose “Browser Wallet”. Enter your Coin98 Extension Wallet password if needed.

Ensure that your wallet prioritizes Ethereum. Open the Coin98 Extension Wallet and change the Web3 Priority if needed.

Deposit

Step 1: Find the asset you want to deposit. I’ll take USDT as an example.

Step 2: Click “Deposit”.

Step 3: Click “Continue”.

Step 4: Check the gas fee and confirm in your wallet. You have successfully deposited on Aave.

After depositing your assets, you can start trying other Aave features, such as:

  • Borrow other tokens depending on your collateral.
  • Use Flash Loan.
  • Swap your deposited assets.
  • Swap/repay your collateral assets.

How to use Aave on Coin98 Wallet dApp browser

Step 1: Open the Coin98 Mobile Wallet. Select “Browser”.

Step 2: Search “Aave”.

Step 3: Choose an asset that you would like to deposit. I’ll take DAI as an example.

Step 4: Click “Connect Wallet”.

Step 5: Choose the desired network and select “Browser Wallet”. I’ll use the Ethereum network as an example.

Step 6: Click the “+” icon at the top right corner.

Step 7: Click “deposit”.

After depositing your assets, you can start trying other Aave features, such as:

  • Borrow other tokens depending on your collateral.
  • Use Flash Loan.
  • Swap your deposited assets.
  • Swap/repay your collateral assets.

FAQ about Aave

How much should I borrow?

To avoid liquidation, you should borrow only a reasonable amount. Depending on the assets that you are borrowing, there will be different Liquidation Ratios and Collateral Ratios. I recommend that you keep the Liquidation Price at about 50% (for normal tokens) and 60-65% (for stablecoins) of that asset’s market value. This is a pretty safe threshold to borrow assets.

For example: If I borrow Aave (a normal token) at $280, I will adjust the amount of Aave I borrow so that its Liquidation Price will be around $140 (50%).

However, remember that this number should only be treated as an advisable standard. You should adjust the amount based on the assets you are borrowing and the assets you are collateralizing, considering its price fluctuation and price spread.

How much can I earn by lending/supplying?

Depending on the protocol you are using and the asset you are depositing, the APY will be different.

Do remember that the APR (APY) you earn by lending is usually much lower than that by farming/staking. Conventionally, the APR on lending protocols ranges from 1% to 3%.

You should check all the possible yields on different platforms and protocols to make the most profitable decision.

Do I have to lock my assets when lending/supplying?

No, you don’t. You can withdraw your assets anytime you want, given that you are not borrowing any assets and/or having any debt.

How much do I have to pay after borrowing?

The borrowing fee varies depending on the assets you are borrowing, and the application you are using. Although some assets are supported with a 0 borrowing fee, the number usually ranges from 5-7%.

You can pay this fee in multiple assets based on the list that the protocol supports.

Conclusion

And that is all you need to know in order to use Aave. Hopefully, this article can effectively support users in using Aave with the Coin98 Mobile Wallet and the Coin98 Extension Wallet.

If there are any questions, please feel free to comment below or join Coin98 Community for further discussions about Crypto!

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Quang Phan

Quang Phan

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