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They're basically receipts for putting money into a lending pool. In this case he's lending about $130 million, on which he's earning interest, and can get his
by scyclow 5y ago
They're basically receipts for putting money into a lending pool. In this case he's lending about $130 million, on which he's earning interest, and can get his money back by redeeming those tokens.
- harambae 5y agoMy apologies for being so ignorant on crypto lending, but I'm not even sure where I'd look up the details of how this system works. When Thomas puts that money into the lending pool, what happens if the borrower defaults? Did the borrower put up some non-liquid collateral? Did someone do a background/credit check? Who takes the loss, is it split across the pool? I understand how traditional bank loans work, I'm a little lost how much risk is being taken by the loan issuer here.
- scyclow 5y agoAave's documentation [1] is pretty good if you're interested in doing a deeper dive. But yeah, it's a collateralized loan where the borrower stakes some ETH. So the idea is that I can take $100 worth of ETH and put that up as collateral for a $75 loan. And if the value of my collateral drops due to the ETH<>USD exchange rate I have to stake more collateral. If I don't (or if the exchange rate moves below a certain point) then my collateral is automatically liquidated at a discount. So in this case, if the value of my collateral falls to $80 the contract will put it up for sale at $75 -- this creates an arbitrage opportunity, so the liquidation will likely happen very quickly. There are other lending protocols where you can stake other assets (NFTs, other tokens, etc.), but this is my understanding of how Aave works. [1] https://docs.aave.com/faq/ https://docs.aave.com/faq/