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What is AAVE? | Bitcoin IRA

Is AAVE a good investment for your Bitcoin IRA?

What is Aave?

Aave (AAVE), Finnish for ghost, is an open-source liquidity protocol built on the Ethereum blockchain that participates in the decentralized finance (DeFi) market. Users may earn interest on deposits and borrow assets, all without the need for a bank. Instead, transactions are completed automatically on the blockchain thanks to programs that run on blockchains known as “smart contracts”, which are automatically executed when certain conditions have been met.

Back in 2017, Aave, called ETHLend at the time, participated in an initial coin offering (ICO) in which it raised over $16 million. The following year, ETHLend was rebranded as Aave, which was followed by the launch of the Aave protocol on the Ethereum blockchain in early 2020. As of Q2 2022, investors deposited over $18 billion in funds onto the Aave protocol. This is spread across various networks, including Ethereum, Avalanche, and Ethereum-side-chain Polygon, plus lending pools, and borrowed and staked assets.

At its peak, Aave had $30 billion in total value locked (TVL) on the protocol, representing the amount of assets deposited. More broadly, the DeFi market has over $211 billion in TVL. If you’re wondering, ‘Is Aave a good investment?’ or how to buy Aave, keep reading, and we will do our best to provide you with enough information to answer those questions for yourself.

The Basics of Aave

To better understand Aave, it helps to think of it as a lending and borrowing protocol that runs on Ethereum, the leading blockchain in the DeFi market. They simplify the lending and borrowing process  within the decentralized market via a Web3 wallet, like MetaMask.

Users 1.) borrow cryptocurrency assets built on Ethereum’s ERC20 standard by securing loans with crypto collateral or 2.) lend idle cryptocurrency assets to earn interest. Aave does not require any know-your-customer verifications or credit checks. Lending and borrowing are then anonymous and designed to be transparent on the Ethereum blockchain.

The AAVE token is the native cryptocurrency of the Aave ecosystem and ranks among the top 50 cryptocurrencies as of April 2022. AAVEtoken holders receive key benefits, such as lower trading fees on the Aave platform. In addition, similar to other traditional lending products, Aave loans are collateralized, except instead of a vehicle or a house, the collateral is a crypto asset. And users who provide AAVE tokens to secure loans on the Aave platform might be eligible for lower fees and larger loans. Meanwhile, lenders of the AAVE token earn interest on the funds they lend out.

Importantly, AAVE is not the only token supported for loans in the Aave protocol. In addition to AAVE, users can also borrow and lend Ethereum (ETH), Dai (DAI), and stablecoins, such as Tether (USDT) and USD Coin (USDC) and other digital assets.

AAVE is also considered a governance tokenthat provides the Aave community with the ability to influence critical events in the Aave ecosystem by voting or submitting proposals for changes, additions, etc. As of April 2022, the Aave community was comprised of over 108,000 of token holders.

The AAVE token is also used for speculative purposes in the cryptocurrency markets. This is where investors and traders decide if Aave is a good investment and bet on the future direction of the AAVE price.  If you’re wondering how to buy Aave, keep reading because it will be covered below. 

Key Concepts of Aave

Most cryptocurrency projects feature characteristics that are unique to their ecosystems, and Aave is no different. Aave has more key concepts than can be discussed here; however, many of the key features are listed below.

  • Lending Pool: This is a contract at the nucleus of the Aave protocol. It “holds the state” of reserves and assets deposited and handles the logistics of calculating interest rates, etc. It uses other features to “interact with the reserves” via different actions, such as deposits, borrowings, rate swaps, flash loans, etc.
  • Reserves: These are at the center of the Lending Pool. According to the Aave whitepaper, reserves are held in Lending Pools across various currencies, and the total amount of which is converted into Ethereum and called total liquidity. Reserves accept deposits from lenders, and it is from these reserves that borrowers may access funds. Unless it’s a flash loan (discussed below), borrowers using other currencies must lock in a value that surpasses their borrowed amount as collateral.
  • Lending Pool Data Provider: This is yet another contract on the Aave protocol that calculates the ETH equivalent that users have in their balance and the amount they qualify to borrow.
  • Flash Loans: These are automated loans that require no collateral and must be repaid in a flash or before a single transaction is completed on the Ethereum blockchain. Users borrow from reserves in one transaction with the condition that they must return more liquidity than they borrowed before the transaction is completed, in addition to the loan amount plus a fee. Otherwise, the loan is null and void. The use cases for Flash Loans include arbitrage between assets without the need for the principal amount to complete the transaction, or swapping collateral of loan positions, to name a couple of examples. It takes 13 seconds  for a flash loan to be completed on the Ethereum blockchain.
  • Interest Rate Strategy: Sets the interest rate for the Aave reserves and updates these interest rates as needed.

Supply: The total supply of the AAVE token is capped at 16 million coins.

Aave vs. Compound

Regarding the question, ‘Is Aave a good investment?’ it helps to pit it against a competing lending protocol, like Compound. Both Aave and Compound are a play on the DeFi market. Aave and Compound offer investors a way to direct cryptocurrency assets that they are not using toward lending and earning interest at competitive rates or borrowing. While Compound made its debut first, back in 2017, Aave has been a quick study, building loan products along the way that Compound does not offer and even hit its stride among users in 2021.

With both protocols, the lending and borrowing activities are decentralized in nature. They occur on the blockchain using automatically executed smart contracts and require no centralized entity, like a bank to complete a transaction. One of the key benefits is that users save on fees since there’s no third party taking a cut.

Choosing between the two protocols will depend on a user’s specific needs. Let’s explore some of the critical differences.

Aave supports more cryptocurrencies for lending and borrowing than Compound, at 23 vs. 9. As a result, investors seeking more assets may find Aave more beneficial, which is reflected in the billions of dollars that have been deposited on the platform. To be fair, Compound has $6.37 billion in total value locked as of April 2022.

In addition, the borrowing limit is higher on Aave, at 75% of the collateral amount for Aave vs. just under 67% for Compound. Aave is also reknowned for its Flash Loans, a product for traders that is unique to the Aave protocol. Interest rates change, but Aave is known for having higher rates vs. Compound, which means lenders earn more. Historically, Aave’s rates have been known to be 2% higher than Compound’s.

Aave and Compound have similarities and are leading protocols for lending and borrowing in the DeFi market. Based on the features we’ve compared above, Aave appears to have an edge.

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How to Buy Aave

Suppose you believe that DeFi has disrupted financial services and that the trajectory will continue. In that case, an option for you to consider investing in is AAVE, a top DeFi lender. If you’d like to know how to buy Aave, you may be delighted to learn that there is no shortage of ways.

AAVE trades on many leading cryptocurrency exchanges, including Coinbase, Binance, Kraken, Huobi Global Exchange, FTX, and more. Each of these trading platforms require an account to be opened and funded by either a bank account or a credit card, which could carry additional fees. Using the relevant trading pair, one could also convert another cryptocurrency, such as bitcoin, for AAVE..

Aave is also available on decentralized exchanges (DEXs), such as Uniswap or SpookySwap. If you’re wondering how to buy AAVE on a DEX, note that a digital wallet, like one offered by MetaMask, will be needed. DEXs have no centralized authority and allow users to trade cryptocurrencies directly with other investors/traders on the platform.

Meanwhile, if you’re looking for a tax-advantaged way to buy AAVE, you can do so through a retirement account, such as a self-directed IRA. Doing so with Bitcoin IRA, the leading and one of the most trusted crypto IRA platforms available, may provide you with long-term exposure to this DeFi token. We will explore buying AAVE on Bitcoin IRA in further detail below.

The fact that AAVE trades on major crypto exchanges bodes well for the liquidity of the AAVE market. Investors should not have any trouble buying or selling this cryptocurrency, which as of April 2022, has a market capitalization of approximately $2.4 billion.

Something to bear in mind is that the rules for cryptocurrencies are still being written, and the markets may exhibit wild price swings at times.  Carefully selecting market-leading projects, like Aave is for DeFi, and sticking with it for the long haulis a strategy option for hopeful investors that may lead to potential success.. 

AAVE Crypto IRA and Taxes 

One of the perks of investing in Aave withyour IRA is tax savings (as briefly mentioned above), paving the way for you to capture more potential returns. Get the most out of your retirement savings by investing in a tax-advantaged1 IRA. By investing in cryptocurrencies like Aave and Bitcoin in your crypto IRA, you have the potential to generate outsized returns while avoiding capital gains taxes. These tax advantages are just not available in other types of accounts.

As discussed in another Bitcoin IRA article, “a perk of investing in crypto within a Roth IRA is the potential to avoid paying capital gains taxes when funds are withdrawn from your account once you’ve reached the retirement age of 59 and a half. This benefit means your share of the earnings pie can be bigger because you can save at least 20% on your capital gains”. (From What is Solana page)

Here’s where we will attempt to answer the question, ‘Is Aave a good investment?’ Perhaps, you may be bullish on the prospects of the DeFi market, where transactions are completed faster and cheaper than is otherwise possible in the traditional markets. In that case, an option you might want to consider is investing in the leading cryptocurrencies for the lending market segment, like AAVE.

Why Should I Invest in AAVE with Bitcoin IRA?

Aave has risen to the top of the heap for DeFi lending in a short amount of time and, as we’ve discussed, has seen billions of dollars in crypto deposited on the Aave protocol. In fact, Aave has earned the distinction as the biggest credit protocol in the blockchain industry.

By investing in Aave through Bitcoin IRA, you’ll capture all the benefits that a crypto IRA offers, including tax advantages, so your capital gains won’t slip away.

You can rest assured that your funds will be in good hands. Bitcoin IRA takes security seriously and employs military-grade security2 and has partnered with leading industry digital wallets, like BitGo, the industry’s biggest processor of bitcoin transactions. Plus, your digital assets are secured for up to $700 million3 in custody insurance. If you’re planning to include crypto in your IRA, Bitcoin IRA4 is the leading name in the industry to do so, which is why they’ve processed over $2 billion in transactions and received over 3,500 5-star user reviews

How to Create a Bitcoin  IRA with AAVE 

Cryptocurrencies have transformed how people invest and how they save for retirement. If you want to join over 100,000 users investing on BitcoinIRA.com and gain exposure to the Aave protocol for your long-term retirement goals, the process is simple and can be done entirely using our convenient mobile app (available on both iOS and Android).

  1. Create an account on our platform. This can be completed in a few short minutes.
  2. Fund your account. You may opt to contribute funds from your personal bank account or roll-over funds from another retirement account.
  3. Let us know the amount you want to invest and start trading.

Access your customized dashboard, live prices and digital wallet to self-trade around the clock in real-time, thanks to our innovative platform. Your dashboard is the go-to destination for price tracking, portfolio performance, videos, learning, etc. Plus, if you have any questions, Bitcoin IRA specialists are available via phone and email.

AAVE Price Predictions 

By now, we’ve addressed what you may need to know to answer the question, ‘Is Aave a good investment?’ for you. We’ve rounded up some of the short and long-term price targets for the AAVE cryptocurrency if you’d like more context. In its history, the AAVE price has traded as high as $666.86, but it has since come down from those levels.

  • The InvestAnswers YouTube channel, which has 432,000 subscribers, has provided an outlook on the AAVE price. For 2022, they predict an AAVE price of $644.80. By 2024, they’ve got a price prediction of over $1,000. And by 2030, the AAVE price should be trading at over $2,100 per coin, as per InvestAnswers.

Crypto Academy predicts that by year-end 2022, the AAVE price will trade at a minimum of $250 and a maximum of $450. In 2023, they expect an average price of $420. By 2025, the author predicts an average price of roughly $860.

Crypto Academy AAVE Price Predictions for year-end of 2022 for Bitcoin IRA

Source: Crypto Academy 

  • CoinQuora forecasts that the AAVE price could be hovering at $700 by year-end 2022.
  • FXStreet analysts believe the release of Aave version 3, which addresses some of the former pain points, is bullish for the AAVE price.

 

1Some taxes may apply. We recommend you consult your tax, legal, and investment advisor.

2Security and insurance may vary based on asset chosen and custody solution available.

3Insurance may vary based on asset chosen and custody solution available.

4Alternative IRA Services, LLC dba Bitcoin IRA is a platform that connects consumers to qualified custodians, digital wallets and cryptocurrency exchanges. The company is not a custodian, is not a digital wallet and is not an exchange. Self-directed purchases processed through Bitcoin IRA have not been endorsed by the IRS or any government or regulatory agency. Bitcoin IRA is not an adviser. Information contained on this website is for educational purposes only. We encourage you to consult an adviser or professional to determine whether Bitcoin IRA makes sense for you. Cryptocurrencies are very speculative and involve a high degree of risk. By using the website, you understand the information being presented is provided for informational purposes only and agree to comply with our Terms of Use and Privacy Policy.

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