Aave is an open-source and non-custodial liquidity protocol where lenders can earn interest on deposits and debtors can borrow assets easily.
It supports various assets like DAI, TrueUSD, USDT, Ethereum, and UNI on its platform.
The procedure that borrowers and lenders must follow in Aave is
Lenders have to deposit their funds or assets in liquidity pools and earn interest income.
The interest rates are not fixed but depend on the prevailing market conditions.
The interest rate will vary depending on the borrowing rate and the utilization rate.
The borrower can borrow a specific amount from the available liquidity pool either in an undercollateralized or overcollateralized manner.
Some amount of crypto assets will be set aside in a reserve to safeguard against any market volatility.
Lenders have full freedom to exit the protocol by withdrawing their funds whenever they want.
Liquidation will occur if the borrower’s collateral value suffers a drop.
Liquidation can be avoided by offering more collateral or repaying some parts of the loan to the creditor.
Hence, experience instant settlement of transactions, no credit checks, and better interoperability by developing a DeFi lending protocol like Aave.
