1. As promised, this is a thread about @AaveAave and #flend! AAVE is a lending/borrowing protocol that evolved the #defi ecosystem to the next step! It's gonna be a long thread, let's start!
$ftm
$ftm
2. In order to understand the decentralized way, we first need to understand the traditional way.
As always i'll try to make it as easy as it can be!
So we first need to understand how banks make money.
As always i'll try to make it as easy as it can be!
So we first need to understand how banks make money.
3. Let's say you have 1000$ in your pocket and you want to deposit your #money to a #bank, because they give some #interest to you. Let's say your bank gives %1 interest rate for 1 year lock.
4. And there are 999 more people doing the same with you. There are 1000 people depositing 1000$ to a bank for %1 annual percentage rate (APR).
You just created a pool worth 1M$ !
You just created a pool worth 1M$ !
5. Then that bank lends that money to someone else.
But of course not with %1 APR, they are lending with %3 APR.
They are borrowing at %1 APR, but lending at %3 APR?
Yep. That is how they make money.
But of course not with %1 APR, they are lending with %3 APR.
They are borrowing at %1 APR, but lending at %3 APR?
Yep. That is how they make money.
6. And they are not just lending the money that being locked for 1 year, but almost ALL of the money you deposit.
It's like not your keys, not your #crypto.
But you MUST give them the keys in the current financial world.
It's like not your keys, not your #crypto.
But you MUST give them the keys in the current financial world.
7. And to borrow from a bank, you need to have #collateral at least worth more than the borrowed amount.
For example to borrow 100.000$, you have to show them your house worth 200.000$ as collateral.
Or your salary, or something worth.
For example to borrow 100.000$, you have to show them your house worth 200.000$ as collateral.
Or your salary, or something worth.
8. So how do we get rid of this middleman? Meet @AaveAave ! @StaniKulechov is a genius man!
It's a peer-to-peer lending protocol based on #ethereum!
Well, it's peer-to-pool-to-peer but, who cares?
It works like this:
It's a peer-to-peer lending protocol based on #ethereum!
Well, it's peer-to-pool-to-peer but, who cares?
It works like this:
9. To borrow something, first we have to have that "something" right?
So first we need to create a pool.
Like we did it with the bank.
Except noone has the control of that pool.
So first we need to create a pool.
Like we did it with the bank.
Except noone has the control of that pool.
10. Let's take the same example again. I won't cover the fees for educational purposes.
We as 1000 people, put our 1000 $DAI into the pool.
Now we have 1M $DAI in the pool for anyone who wants to borrow from it.
We as 1000 people, put our 1000 $DAI into the pool.
Now we have 1M $DAI in the pool for anyone who wants to borrow from it.
11. But how do we know if they are gonna pay back?
We don't know, so they have to lock some collateral to borrow money from us. So we can liquidate their money if they are not paying.
It's becoming complicated, so let's try to look to a peer to peer example:
We don't know, so they have to lock some collateral to borrow money from us. So we can liquidate their money if they are not paying.
It's becoming complicated, so let's try to look to a peer to peer example:
12. Let's say 1 $ETH=1000 $.
Alice has 500$.
Bob has 2 ETH.
Alice wants to earn interest on her money.
Bob has to pay his 500$ rent, but doesn't want to sell his ETH, because he thinks ETH is going to be worth more.
Alice has 500$.
Bob has 2 ETH.
Alice wants to earn interest on her money.
Bob has to pay his 500$ rent, but doesn't want to sell his ETH, because he thinks ETH is going to be worth more.
13. Bob locks his 2ETH as collateral. Now he has 2000$ worth of collateral.
He borrows 500$, and promises to pay back with %10 interest rate.
And if he doesn't pay back his debt to Alice, he can not unlock his 2ETH, which equals to 2000$. So he has to pay it back at some point.
He borrows 500$, and promises to pay back with %10 interest rate.
And if he doesn't pay back his debt to Alice, he can not unlock his 2ETH, which equals to 2000$. So he has to pay it back at some point.
14. Bob's health factor is 4,0 for now. Because :
He has 2000$ worth collateral.
He borrowed 500$.
2000/500 = 4.
In one year, he will owe 550$ (500+%10 interest)
So in one year his health factor will be:
2000/550 = 3,64.
I know you hate math, but it is what it is.
He has 2000$ worth collateral.
He borrowed 500$.
2000/500 = 4.
In one year, he will owe 550$ (500+%10 interest)
So in one year his health factor will be:
2000/550 = 3,64.
I know you hate math, but it is what it is.
15. So if you understand that example, you understand how does #AAVE work!
Take 10000 Alices and 10000 Bobs, make them meet in a decentralized app, and voila you just created AAVE!
(Ofc it's not that easy, and there are many details that i didn't mention, but VOILA!)
Take 10000 Alices and 10000 Bobs, make them meet in a decentralized app, and voila you just created AAVE!
(Ofc it's not that easy, and there are many details that i didn't mention, but VOILA!)
16. To protect Alices' funds, there is a liquidation threshold. If Bob's health factor drops below a certain amount (It differs for different pools), the system liquidates Bob's funds to pay to Alice.
17. And let's add more spice shall we?
If there are so many borrowers, borrowing and lending APR becomes higher.
If there are almost no borrowers, borrowing and lending APR goes to near-zero.
It works like automated market maker in #Uniswap!
AUTOMATED LENDER MAKER (?)
If there are so many borrowers, borrowing and lending APR becomes higher.
If there are almost no borrowers, borrowing and lending APR goes to near-zero.
It works like automated market maker in #Uniswap!
AUTOMATED LENDER MAKER (?)
18. I was going to tell about #flashloan too, but realized the thread became too long. Let's leave it for another thread.
AAVE is one unique #defi app, but because it's on ethereum, the gas fees are so high.
I would like to see them in #fantom.
But guess what
AAVE is one unique #defi app, but because it's on ethereum, the gas fees are so high.
I would like to see them in #fantom.
But guess what
19. #fLend is basically AAVE on #opera chain!
But with instant finality.
With almost no costs.
In the #fwallet.
Everything is in the fWallet!
Coming soon!
But with instant finality.
With almost no costs.
In the #fwallet.
Everything is in the fWallet!
Coming soon!
20. And i promise i will record a video about it when it becomes live!
See you in the next thread, thank you for reading!
$ftm
See you in the next thread, thank you for reading!
$ftm
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