What is Aave?
Before we dive into the specific steps of borrowing assets from AAVE via the Axon app, we need to understand what Aave's protocol is and how people borrow.
Aave operates as a decentralized finance (DeFi) lending service. This platform enables instant borrowing of cryptocurrencies, using your own crypto holdings as collateral. Additionally, it offers the opportunity for users to lend their coins and earn interest.
Similar to a traditional bank, borrowers pay interest on loans while lenders receive interest on their deposits. However, unlike banks, there are no human loan officers or managers involved. Instead, smart contracts take the place of intermediaries.
The key functionality of Aave lies in its use of "liquidity pools." Deposits are pooled together, providing a large reserve of cryptocurrency that the system uses for loans. This substantial pool allows for efficient and scalable loan distribution on demand. These smart contracts manage all aspects of the process, from lending to repayment, in a near-instantaneous manner. However, this automated system also means that in case the loan health drops below a certain threshold, borrowers have no recourse for extension or negotiation.. In such cases, the smart contract strictly enforces the terms, leading to the automatic liquidation of the borrower's assets as per the pre-defined rules.
Why should I borrow from Aave via Axon?
As a DeFi platform, Aave often presents challenges in terms of user-friendliness and intuitiveness, primarily catering to those with more technical expertise. Our platform, however, simplifies access to its services, providing the added convenience of direct borrowing and lending in fiat currency.
How does borrowing from Aave work?
Before you can take out a loan from Aave, you need to deposit assets as collateral. The amount you are eligible to borrow is directly related to the value of the deposited collateral and a measure known as the loan health factor. This factor is a numerical representation of the security of the deposited assets in relation to the assets you want to borrow. A higher loan health is preferable, indicating a safer lending situation. However, maintaining a health factor above 1.07 is crucial to ensure the safety of the collateral.
How to borrow from Aave?
You need to have a connected DeFi wallet to your Axon account. If you need assistance, please refer to How to connect my DeFi wallet to my Axon account?
Tap on the arrows button in the middle of the footer menu
Select DeFi Borrow
From the next screen you will be able to select the Add Collateral option
You can choose the currency and the amount of the collateral you will deposit
Once the collateral is successfully deposited to the Instant wallet, you will see a Collateral wallet within it
When you tap on the amount in the Collateral wallet, you will see the maximum you can take out as loan based on the provided collateral. When selecting an amount, you will be able to see what the loan health will be
After you choose the amount to borrow and to which wallet should the loan be credited, you will need to confirm the transaction in your connected deFi wallet
Once confirmed, the loan will be credited to the chosen wallet. Within the Instant wallet you will now have an additional Debt wallet.
What is Loan Health?
Loan Health refers to the current status or condition of the loan. It's an indicator of how safe the loan is from the risk of liquidation. This is determined by few factors, primarily the value of the collateral you have deposited versus the amount of the loan taken out.
What coins can I borrow from Aave via Axon’s app?
WETH, WBTC, USDC, DAI, LINK, FRAX
Additionally - Axon's users can borrow fiat directly.
Do I need to pay interest on the loan?
Yes, the interest rate accrued on the loan taken from Aave is a variable one.
Where will I see the interest?
The accumulated interest will be added to the total amount within the Debt wallet.
Can I borrow multiple currencies from Aave?
Yes, as long as you have deposited sufficient collateral to maintain a higher loan health, you can have multiple active loans.
How can I repay my loan?
Please review the following article: How to repay my loan?