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Invest in Aave in 2022

Last updated 26th Sep 2022
Disclosure

Aave (AAVE) is one of the most popular decentralized finance (DeFi) protocols, ranking among the largest lenders of cryptocurrency. The price of its native cryptocurrency token, AAVE, has grown tremendously over the past few months and has sparked interest for investors as a result.

This guide explores AAVE and will show you how to buy Aave.

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What Is Aave

Aave is a decentralized lending protocol. Its main goal is to help users lend or borrow cryptocurrencies without the use of a central intermediary.

To use Aave, users will have to deposit digital assets into its liquidity pools, after which these become funds that the protocol lends out.

Aave is popular due to the fact that it has an easy-to-use interface, competitive rates, and has large liquidity. There are 13.1 million AAVE tokens in circulation, which is 82% of its total supply, with a market cap of $4 billion.

Aave as a company was founded in 2017 by Stani Kulechov and is based in Switzerland. Originally named ETHLend, it raised $16.2 million in an initial coin offering (ICO) in the same year.

Aave runs on the Ethereum blockchain—a system of smart contracts that enables assets to be managed by a distributed network of computers that run the software behind it. The Aave software enables the creation of lending pools that allow users to lend and borrow many cryptocurrencies.

Users do, however, need to post collateral before they can borrow, and can only borrow up to the value of the collateral. Borrowers get funds in the form of an “aToken” which is pegged to the value of another asset.

An aToken is an interest-bearing token that is minted within each deposit and burned every time funds are redeemed. The aTokens are pegged 1:1 to the value of the underlying asset that gets deposited to the Aave protocol. Examples include aDai, aUSDC, and aUSDT.

Pros

  • Users can lend or borrow a large variety of cryptocurrency tokens

  • Competitive rates

  • Instant collateral

  • Collateral-free flash loans

Cons

  • Might be difficult to use for users who are inexperienced with lending protocols

  • Low interest rates compared to some other protocols in the market

How Does Aave Work

Aave is essentially a system that allows lending pools to be created. Users can then deposit any funds that they want to lend out within these pools. Borrowers can draw from the created pools and take out a loan. This way, the lender is able to trade or transfer tokens as they please.

To make all of this work, Aave has two types of tokens.

First, you have aTokens, which are issued to the lenders to collect interest on deposits.

Second, you have AAVE tokens, and these are the native cryptocurrency tokens that power the entire protocol.

An advantage of the AAVE cryptocurrency is that no fee is charged when holders take out a loan that is denominated in the token. Borrowers who end up using AAVE as their collateral can also get a discount on the fees.

Then you have flash loans, which Aave facilitates and are instantly issued as well as settled.

These loans do not require any upfront collateral. Flash loans take advantage of the fact that the transactions can only be finalized when the network accepts a new bundle of transactions. The borrower can request funds from Aave but has to pay back those funds alongside the Aave fee within the time of the same block. If the borrower fails, the transaction is canceled. Neither Aave nor the borrower bears risk by facilitating the trade this way.

Ways To Buy Aave

Aave is now available on many cryptocurrency exchanges and brokerages, and as such, you should have an easy time finding one that supports the token from the hundreds of options out there.

You can use cryptocurrency exchanges, CFD brokers, P2P marketplaces, or in-person trading.

  • CFD Brokers – The CFD broker is the intermediary between you, the investor, and the cryptocurrency market and provides you with a trading platform that offers specific services and conducts the process of trading.

  • Cryptocurrency Exchanges – These are businesses that allow you to trade cryptocurrencies and give you access to charting tools and other features.

  • P2P Marketplaces – P2P cryptocurrency marketplaces allow you to buy or sell directly with another user.

  • In-Person Trading – This is the type of trading where you meet the person you are trading with in-person. Once money is exchanged, the seller can send the cryptocurrencies to the buyer's wallet address.

Here is everything you need to know about buying Aave (AAVE) online, a method that should work on most options:

  1. Start by creating and verifying your account on the cryptocurrency exchange you have chosen for this task. If you already have an account created somewhere, simply log into your account.

  2. Ensure that your account is funded first, and if not, deposit some funds. After that is completed, search for Aave (AAVE), and once selected, choose how many tokens you would like to purchase.

  3. To complete your transaction, you need to click on "Buy." Your currency will be transferred into AAVE, and you should be able to see your tokens in your exchange wallet.

How To Invest in Aave

Investing in Aave can be done in a multitude of ways. Here is everything you need to know about some of your options.

When trading Aave, you are speculating on AAVE’s price movements without owning the actual token. You can make long or short trades, and trade volatile price swings in either direction.

You can use a short-term or a long-term strategy and need to utilize margin and leverage to ensure maximum usage of account equity.

The option you choose for trading Aave needs to provide you with the ability to employ entry orders, stop losses, profit-limit orders, and risk-management techniques.

  • Brokers. You can use a cryptocurrency brokerage that can connect you to the cryptocurrency market. All you really need to do is create an account with a brokerage, find the AAVE token within their listings, and purchase it, keeping in mind that the brokerage sets the price of the AAVE asset.

  • Exchanges. Aave exchanges also provide you the opportunity to invest in the AAVE token; however, in this case, the market determines the price of the AAVE token. You need to create an account, connect your wallet and buy AAVE or trade it directly.

  • ETFs. You can also invest in AAVE through an ETF fund which gives you access to a diversified portfolio of cryptocurrency tokens that you can trade with a high level of transparency and liquidity.

  • Index Funds. Through index funds, you can buy a share of AAVE instead of investing in the token directly and experts will determine how to invest your tokens.

  • Mutual Funds. You can also invest in AAVE through a mutual fund if you do not want to own the token directly. You can add additional cryptocurrencies and professionally manage them.

  • Trusts. Trusts will hold the AAVE tokens for you and allow you to trade your shares through a brokerage or a cryptocurrency exchange.

  • Debit Cards. If you do not already own cryptocurrency tokens to buy AAVE, you can purchase the token using a debit card. In this case, simply connect the debit card to the exchange or brokerage in question and fund your account.

  • Apps. Many cryptocurrency exchanges or brokerages have their own mobile app. Additionally, specific payment services have apps that give you the option to buy AAVE with your credit or debit card.

Is it Safe To Invest in Aave Right Now?

Investing in Aave (AAVE) can be risky due to the fact that the cryptocurrency market as a whole has a high level of volatility associated with it.

This means that there can be large price swings in either direction, depending on numerous factors such as news, technical and fundamental analysis, and more. This depends on the market and the interest, as well how you use the Aave protocol.

If you buy Aave from a reputable exchange or brokerage that has security measurements in place, you have a higher chance of protecting yourself against risks.

Danny Maiorca

Danny Maiorca

Danny is a freelance writer specialising in technology and finance. Prior to working for himself, he spent several years working within those sectors in London. Since then, Danny has relocated to Denmark.