Skip main navigation

New offer! Get 30% off your first 2 months of Unlimited Monthly. Start your subscription for just £35.99 £24.99. New subscribers only T&Cs apply

Find out more

Borrowing and lending with Aave

Professor Ellie Rennie demonstrates how to use the Aave platform for borrowing and lending.
<v ->Hi, I’m Ellie Rennie</v> I’m going to show you some borrowing and lending on the DeFi platform Aave. Here I am in the app. This is the Markets Page as you can see here in the right-hand corner, we have three different markets Aave Version 2 is the Ethereum Main Net Market. There’s also an AMM market, which you can use to borrow and lend LP tokens. So if you have contributed to a liquidity pool on Uniswap, you can then use that as collateral for activities over here on Aave. Today, I’m going to use the Polygon Network.
I’ve tried doing this on the Ethereum Main Net version 2, and the fees were higher than the amount of Ethereum I had in this wallet. That may change in the future. But right now I’m going to use Polygon, which is a different Blockchain that interacts with the Ethereum Blockchain. So I can still use the same tokens, but it does require a significant amount of establishment, including setting up a Polygon Wallet, which you can see over here and bridging your assets on your Ethereum Wallet over into the Polygon Chain.
But back to Aave So if I want to borrow on Aave, I need to make sure here I am up in the right-hand corner It tells me that I am currently in the Polygon Market. And also very importantly that my MetaMask wallet is connected to Polygon. So you can use Hardware wallets in Aave, I’m using a Browser wallet. It will ask you to connect before you can interact. So let’s try Wrapped Ether because I know that I have some of that in my Polygon wallet effectively when I transferred my Ether through the Polygon Bridge over to my Polygon Wallet, it wrapped that asset, Hence, Wrapped Ether instead of Ether.
So, I can see here that my wallet balance is 0.15 Wrapped Ether, and I have not yet deposited anything into Aave. So that’s the first thing I need to do. However, we can see here that there is some other important things to know. If I deposit my Ethereum, my Wrapped Ether here, I’m going to earn a 0.16% interest APY. So that’s my yield over a year. And if I’m borrowing, then I will be paying 1.5% at least on this particular asset. So the first thing I need to do is to deposit the funds because you can only… borrow if you have some collateral on the platform.
And the, the way that it works is that if the underlying collateral price changes to a significant degree, so that my loan is then under collateralized, a portion of my collateral will effectively be lost. So I’m going to start by depositing some Wrapped Ether. Let’s do the Max amount in this case and I press continue.
So my first step here is to approve this
You can see here that I’m now over my MetaMask wallet. It’s asking me to confirm there’s a tiny fee here for that confirmation.
I now have a pending transaction while we are waiting for this transaction to go through. It’s worth noting. We can see here, the historical APY rates on the Aave platform, depending on your assets, these will be different, and they will also change depending on the market. So If the market takes as a sudden dip, you may find that a lot of people will want to borrow, which means that you may get a higher interest if you are lending. In other words depositing.
So, I’m being told right now that my transaction has confirmed. And my next step is to actually submit the deposit.
I have another small fee here over in my MetaMask wallet, which is connected to the Polygon Network.
So my deposit is now confirmed. I’m being told here that my collateral, that I have now deposited can actually be used as collateral. And I’m also getting some information about the Liquidation threshold and the Liquidation penalty. So I want to make sure that if I’m borrowing that I am well below this threshold. let’s go back and see what we can do.
Back on the Main Page. What this is telling me here is that the amount that is being borrowed of Wrapped Eth on the Aave platform right now is a lot less than the amount that has been deposited to the available liquidity
let’s go and borrow. So if I click on borrow at the top, I’m going to go into Wrapped Eth,
Available to borrow Let’s see what happens if I put Max. So it’s telling me that it’s 0.12 is the max amount that I can borrow. This is at the absolute riskiest end of the spectrum here. So if there’s a price change, if the price for Ethereum goes down, I’m going to be in trouble. So I might want to lower that and let’s go right down. Let’s get somewhere in the green zone. Let’s say, just for the sake of it, I’m going to borrow around… 0.02 Eth. So my health factor at this point is 6.07.
And it’s telling me the interest rate that I’m going to have to pay on this particular loan. So the Variable Rate is my only choice here.
So the amount that I’m borrowing is around 67 US Dollars and I’m going to pay some interest on that. Let’s press borrow, see what happens
and this is now confirmed. So if I go over to my dashboard, what I can see here is my deposit information which was the 0.15 Eth
Wrapped Eth. And over here is the amount that I borrowed, which is the 0.02,
and other important information that I want to look at when I’m considering this Is, as I’ve mentioned that my health factor is in the Green. In this case, I can see how much Collateral I have behind this. And from this, I can figure out that my Liquidation price is going to be pretty fine, unless there’s a sudden crash.
So what happens when I want to repay my loan, I’m going to go over here and click on Repay at this point, I…
want to just check out what’s going on here. My Loan to Value Ratio is 80%.
My Health factor is in the green. I probably don’t need to repay this if I didn’t want to but let’s just see how it works. Max Amount, Continue,
And… pretty similar process to what I’ve just been through. I’m paying small fees in Matic as I go.
And this is now confirmed. So I have nothing left to repay on this particular loan. If I go back to my dashboard, it’s telling me that I haven’t really got anything that I’ve borrowed at the moment, but what I do have is… my Current balance of 0.15. The final thing which I didn’t mention before is that there’s current rewards for having deposited into Aave… on the Polygon
Market, which has given me a 1.5 2% return on Wrapped Ether of Matic tokens for just using the platform. So that’s a nice little reward that I have,
and that’s it for this particular one. Thread with caution as I mentioned, it’s very, very easy to get liquidated If you’re not following your Collateral Ratio very closely on these platforms.

Now that you have an understanding of some of the different reasons to borrow and lend in DeFi, Professor Ellie Rennie demonstrates how to use the Aave platform to borrow and lend.

This article is from the free online

Decentralised Finance: Blockchain, Ethereum, and The Future of Banking

Created by
FutureLearn - Learning For Life

Reach your personal and professional goals

Unlock access to hundreds of expert online courses and degrees from top universities and educators to gain accredited qualifications and professional CV-building certificates.

Join over 18 million learners to launch, switch or build upon your career, all at your own pace, across a wide range of topic areas.

Start Learning now