Aave works similarly to a bank, where you take out a loan against collateral \u2013 but with cryptocurrencies and without a middleman.<\/p>\n\n\n\n
Imagine you have gold and deposit it in a bank.
The bank allows you to overdraft your account or take out a loan in euros because your gold serves as collateral.
As long as the value of your gold remains high enough, you can continue using your overdraft.
If the value of your gold drops too much, the bank will require you to either provide more collateral or repay the loan.<\/p>\n\n\n\n
You own Bitcoin (or another cryptocurrency) and deposit it as collateral on Aave.
In return, you can borrow Ethereum (ETH) or another cryptocurrency.
As long as the value of your deposited Bitcoin remains high enough, your loan stays open.
If your Bitcoin loses too much value, your deposited funds can be automatically sold to cover the loan (liquidation).<\/p>\n\n\n\n
There is no central authority. Everything runs through smart contracts on the blockchain \u2013 automatically, without manual intervention.<\/p>\n\n\n\n
But isn\u2019t it crazy to use cryptocurrency as collateral and take out a loan instead of just selling it?
At first glance, yes \u2013 but there are good reasons why some people do it:<\/p>\n\n\n\n
In many countries, you pay taxes on profits when you sell crypto.
A loan is not a sale, so it might be more tax-efficient.<\/p>\n\n\n\n
Example:<\/strong> You own Bitcoin, which has increased significantly in value.<\/p>\n\n\n\n When you sell cryptocurrency, it’s gone. Example:<\/strong> You bought Bitcoin at $30,000. Now it\u2019s worth $60,000. Should you sell or borrow?<\/p>\n\n\n\n With traditional banks, you often pay high interest rates, deal with bureaucracy, and undergo credit checks. Some traders borrow against their coins to reinvest the borrowed money (e.g., in DeFi farming or arbitrage). Yes, borrowing crypto incurs interest, but it offers: Whether it\u2019s worth it depends on interest rates, your time horizon, and market conditions.<\/p>\n\n\n\n Link to Aave<\/a><\/p>\n\n\n\n <\/p>\n","protected":false},"excerpt":{"rendered":" What is Aave? Aave works similarly to a bank, where you take out a loan against collateral \u2013 but with cryptocurrencies and without a middleman. Comparison with a bank: Imagine you have gold and deposit it in a bank.The bank allows you to overdraft your account or take out a loan in euros because your… Weiterlesen »Aave<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"neve_meta_sidebar":"","neve_meta_container":"","neve_meta_enable_content_width":"","neve_meta_content_width":0,"neve_meta_title_alignment":"","neve_meta_author_avatar":"","neve_post_elements_order":"","neve_meta_disable_header":"","neve_meta_disable_footer":"","neve_meta_disable_title":"","footnotes":""},"categories":[25],"tags":[],"class_list":["post-99","post","type-post","status-publish","format-standard","hentry","category-dienste-de-en"],"_links":{"self":[{"href":"https:\/\/www.cloudbanking.net\/index.php?rest_route=\/wp\/v2\/posts\/99","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.cloudbanking.net\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.cloudbanking.net\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.cloudbanking.net\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.cloudbanking.net\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=99"}],"version-history":[{"count":1,"href":"https:\/\/www.cloudbanking.net\/index.php?rest_route=\/wp\/v2\/posts\/99\/revisions"}],"predecessor-version":[{"id":100,"href":"https:\/\/www.cloudbanking.net\/index.php?rest_route=\/wp\/v2\/posts\/99\/revisions\/100"}],"wp:attachment":[{"href":"https:\/\/www.cloudbanking.net\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=99"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.cloudbanking.net\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=99"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.cloudbanking.net\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=99"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n
2. You keep your crypto & potential price increases<\/h3>\n\n\n\n
If you use it as collateral instead, you can still benefit from potential future price increases.<\/p>\n\n\n\n\n
If Bitcoin rises to $100,000, you still own it!<\/li>\n<\/ul>\n\n\n\n3. Cheaper than traditional loans<\/h3>\n\n\n\n
With Aave, no credit score is required \u2013 your crypto is the collateral.
Some crypto loans have very low interest rates, especially with stablecoins.<\/p>\n\n\n\n4. Arbitrage & leverage<\/h3>\n\n\n\n
Risk:<\/strong> If your deposited coin drops significantly in value, it can be liquidated.<\/p>\n\n\n\n
\n\n\n\nConclusion:<\/h3>\n\n\n\n
\u2705 Tax benefits<\/strong>
\u2705 Retention of your crypto while getting liquidity<\/strong>
\u2705 Potential to profit from future price increases<\/strong>
\u2705 Faster & more accessible loans than traditional banks<\/strong><\/p>\n\n\n\n