The decentralized finance system (DEFI) has continued to gain a lot of positive attraction, making the use number of use cases extremely convenient and on the rise, so many investors are also building their companies there.
Aave happens to be one of those companies established on DEFI system of operation, it is a money market system that gives room for lending and borrowing of cryptocurrencies. The method of operation on Aave is extremely easy, it has a liquidity pool where lenders make deposit of their crypto funds and borrowers can conveniently borrow from these pools available, the liquidity pool is transparent enough and makes it convenient for both borrowers and lenders to see the amount of liquidity made available.
A very good thing about the operation on Aave is the availability of reserve which serves as a hedge to the pools created, with these reserve in place it is highly possible and convenient for lenders to pull out their funds, it also has room for so many cryptocurrencies available for exchange therefore providing the room for various options.
Of course, in order for a loan to be given out to users, the borrowers need to set up collateral which in this case will be in the value of owned cryptocurrency, however the token given as collateral must be greater than the amount to be loaned that is a clear description of how DEFI operates.
Aave actually operates in a way that not all loans will require that a collateral is dropped, there is a concept of flash loan and with a flash loan there is no need for a deposit to be given, the flash loan works in a way that the trader needs to pay back the loan before the next block is mined or the borrowed funds will be cancelled automatically, there are three use cases of these flash loan method run by Aave currently and they are:
Arbitrage trading.
Refinance loans
Swap the current deposit of collateral.
It will also be great to mention that the interest rate charged on Aave will be significantly linked to the available rate of demand as well as supply.
Conclusion.
I sincerely appreciate the great opportunity given by steemit blog for us to learn and to the selected professors who are trying their best to give us new topics to learn from every day. Thank you to @gbenga for this particular assignment.
Thanks for being a part of my class and for participating in this week's assignment. I hope you learned from the class as the aim of the school is to teach and allow people to learn alongside.
Remark
I expected you to talk about the Defi ecosystem first before looking into the project. Also, you didn't give a comprehensive detail of the project.
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