Thread by @utopialabs_

HUH? 17%+ APY for lending USDC?

You might have seen rates on @aave this week and been shocked. High rates always prompt some disbelief, even for someone who knows about crypto.

Here is a quick breakdown of how rates are so high and how lending/borrowing works on Aave:

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1. First things first, how is the APY so high?

It's simple. The APY you earn for lending USDC is determined by the demand to borrow this asset. In other words, high earn rates indicate a high demand to borrow USDC.

With that said -

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-the demand and supply for a digital asset change every second. So, to get a more realistic understanding of your returns, it may be best to review rates across a period of time.

Aave's earn rates for lending USDC over the past 6 months has been around 8.50%.

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2. That's cool, but what is @aave?

Aave is a decentralized application built on Ethereum that coordinates the lending and borrowing of digital assets. It's a fancy way to say, it's a program that runs on the blockchain that people can use to borrow and lend assets.

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3. So how does the lending and borrowing actually work on Aave?

Let's zoom in and imagine a hypothetical world where Bob the Crypto Trader needs to borrow USDC. Bob would do the following:
-> 1) Deposit $200 worth of ETH as collateral into Aave's protocol

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-> 2) Depending on the collateral-to-borrow ratio set by Aave, Bob would be able to borrow up to a set amount in USDC (let's say $100)
-> 3) Now Bob has to pay interest on the 100 USDC he's borrowing

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-> 4) This interest is now distributed to all users who are lending USDC on Aave

If the $200 of ETH Bob deposited as collateral ever drops in value, it'll get liquidated into USDC to ensure repayment back to the lender. This means it is very unlikely that loans can default.

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Zooming back out, this process operates on a much larger scale automatically via blockchain smart contracts. This ensures consistent, error-free execution and transparency, as the code is open source for auditing, ultimately reducing risks for lenders.

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Learn more in-depth about Aave's lending and borrowing process here:

And, if you're interested in earning through @aave, you can get started without any crypto securely through the Tori App:

Use code VICKIM to access.

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