Tag: flash loans

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Cryptocurrencies

What’s Aave (LEND)? A Beginner Guide

With blockchain came the concept of finance that’s outside the control of the state and government. Cryptocurrencies have been the rage these past few years. But now a bolder and fresher idea is emerging, and it’s called decentralized finance (DeFi). DeFi is the notion that the people have the power, and they don’t have to trust traditional finance systems to make the calls. 

With blockchain came the concept of finance that’s outside the control of the state and government. Cryptocurrencies have been the rage these past few years. But now a bolder and fresher idea is emerging, and it’s called decentralized finance (DeFi). DeFi is the notion that the people have the power, and they don’t have to trust traditional finance systems to make the calls. 

With blockchain came the concept of finance that’s outside the control of the state and government. Cryptocurrencies have been the rage these past few years. But now a bolder and fresher idea is emerging, and it’s called decentralized finance (DeFi). DeFi is the notion that the people have the power, and they don’t have to trust traditional finance systems to make the calls. 

Aave is a DeFi project that allows users to borrow crypto without depositing collateral. Lenders can also deposit money and start earning interest right away without lifting a finger.

Describing itself as “an open-source and non-custodial protocol enabling the creation of money markets,” Aave introduced the idea of uncollateralized loans, carving out for itself an influential position in DeFi. 

With that, let’s find out more about the project!

What’s Aave?

Launched in 2018, London-based Aave is a DeFi platform running on the Ethereum blockchain that lets you lend and borrow a wide range of cryptocurrencies in a decentralized and peer-to-peer manner. Aave takes its name after the Finnish word for “ghost.” The team chose this name to reflect the constant evolvement and imaginative technology that intrigues users. 

The project brings distinguished features to the DeFi space, such as uncollateralized loans and “rate switching.” Aave utilizes the Aave Protocol to create various types of crypto markets where users can build an investment portfolio. 

Background of Aave

Aave was originally known as ETHLend, a crypto lending platform established in 2017 by Stani Kulechov. The company raised about $600,000 worth of Ether in exchange for 1 billion LEND tokens. 

ETHLend rebranded into 2018 in order to incorporate even more platform features, suiting the current cryptocurrency consumer.  

Aave’s Offerings

Aave offers quite an impressive range of unique collaterals for any DeFi lending protocol. 

#1. Flash Loans 

Flash loans are one of Aave’s biggest selling points, and that’s especially because you don’t need to deposit any collateral to use them. Instead of using collateral to ascertain payments, flash loans use the timing of the loan’s repayment. Flash loans were invented by Aave, and they work this way: 

  • Borrowed and repaid in the same transaction
  • No collateral needed
  • Borrow and return the borrowed amount plus a small interest
  • All this needs to happen at the same time, or the transaction will not be approved

Flash loans can be applied in the following kind of scenarios: 

  • To take advantage of crypto price differences in two or more exchanges without necessarily having the principal amount to do so
  • Debt refinancing, or swapping collateral long positions without having to pay the repay the debt of the loan position

#2. Flexible Rates 

Unlike most lending platforms that use either fixed or variable interest rates, Aave implements a “rate-switching” function that allows borrowers to switch between “stable” and “variable” rates, a very handy feature in the extremely volatile crypto market. For high-interest rates, a borrower can opt for the fixed-rate, but for volatile rates that might likely take a dip, they can go for the variable rate. 

Thanks to this new and exciting option, Aave has witnessed particularly strong growth for stable rates loans after their introduction in May 2020. Note that ‘stable’ here does not imply ‘fixed.’ Rather, Aave’s stable loans are more stable variable interest rates that are resilient against wild price swings. This ability to rate-switch gives users more control over their loans by allowing them to choose the best possible rates. 

How to Lend on Aave

Getting started on Save is fairly simple. Visit https://app.aave.com/ and connect using a web 3.0 wallet such as Walletconnect, Coinbase Wallet, or Fortmatic. You can also connect with the Ledger hardware wallet. 

Depositing is easy. Just select an asset and enter how much you wish to lend. Next, allow Aave to access the asset. Then, you’ll need to sign to approve the transaction. Your deposited funds will go to the lending pool, after which you start monitoring real-time how much interest you’re gaining on the Aave dashboard. 

Aave’s interest-earning tokens are known as aTokens, which are similar to Compound’s cTokens. However, unlike the cTokens, aTokens retain the value of the underlying asset and increase only in amount. On the other hand, cTokens appreciate in value with interest.

The LEND Token

LEND, an ERC20 standard token is the native token of the Aave ecosystem. LEND token holders get the right to make their voice heard on any proposals advanced by the Aave team. Such proposals include interest rates, the addition of new assets, liquid configurations, and so on. 

LEND also is burned so as to prevent inflation and increase its value over time. 80% of platform fees are regularly burned on the open market for this end. 

In the future, Aave plans to increase the staking ability of users who’ll then get to participate in protocol governance as well as have a claim in exchange fees in exchange for helping secure the Aave network against malicious borrowers. 

LEND’s distribution was as follows: 

  • 30% to core developers 
  • 20% reserved for user experience development
  • 20% reserved for management and legal
  • 20% reserved for promotions and marketing
  • 10% result for unexpected costs

Which Assets Does Aave Support?

Aave currently supports a variety of tokens, including but not limited to Basic Attention Token (BAT), Synthetix USD (SUSD), Chainlink (LINK), Synthetix (SNX), Decentraland (MANA), Kyber Network (KNC), Ethereum (ETH), Dai (DAI), Aave (LEND), TrueUSD (TUSD), Tether (USDT), Wrapped BTC (WBTC), 0x (ZRX), USD Coin (USDC), Maker (MKR) and Augur (REP).

Who is the Team Behind Aave?

Aave is the brainchild of CEO Stani Kulechov, who originally founded ETHLend. Jordan Lazaro Gustave is the COO, and Nolvia Serrano is the CMO. Both Gustave and Serrano bring over their experience from ETHLend. All in all, the team is made of 22 members with eclectic skills ranging from blockchain, fintech, Ethereum, smart contracts, lending, payments, custodial services, and gaming. 

Aave: Tokenomics 

As of July 30, 2020, Aave is trading at $0.0324118, and with a market cap of $421, 352, 978, it’s the 30th biggest cryptocurrency in the world. Aave has a 24-hour volume of $64, 663,115, and a circulating and total supply of 1, 299, 999, 942. The token’s all-time high was $0.442615 (Jan 07, 2018), and its all-time low was $0.003353 (Sep 06, 2019).

Where to Buy and Store LEND

You can grab some Aave from any of several exchanges, including Binance, MXC, Bilaxy, Bibox, Gate.io, Poloniex, Alterdice, Uniswap, dex.blue, Eterbase, Fatbtc, and Loopring. 

As an ERC20 token, LEND can be stored in any wallet that supports Ethereum. You will not go wrong with any of these choices: Atomic Wallet, Trust Wallet, and of course, the hardware wallets (and hence ultra-secure) Ledger and Trezor. 

Final Words

Given its constant re-invention, Aave’s ghost reference is fitting. Its uncollateralized loans and rate-switching features are two of its radical innovations to ever be seen in the world of finance. And that’s what DeFi is all about: disrupting norms to deliver real value. 

Categories
Crypto Daily Topic

The Two ‘Flash Loan’ Attacks That Shook DeFi

Two attacks took the DeFi world by storm recently in what is the first DeFi major security incident. bZx, a decentralized finance protocol on Ethereum’s blockchain, endured two separate attacks after unknown persons manipulated “flash loans” and managed to drain nearly hundreds of thousands of Ether.

Two attacks took the DeFi world by storm recently in what is the first DeFi major security incident. bZx, a decentralized finance protocol on Ethereum’s blockchain, endured two separate attacks after unknown persons manipulated “flash loans” and managed to drain nearly hundreds of thousands of Ether.

Two attacks took the DeFi world by storm recently in what is the first DeFi major security incident. bZx, a decentralized finance protocol on Ethereum’s blockchain, endured two separate attacks after unknown persons manipulated “flash loans” and managed to drain nearly hundreds of thousands of Ether.

The First Attack

The first attack took place on Valentine’s night when the bZx team was attending ETHDenver – an Ethereum conference that brings together minds across the blockchain and DeFi space annually. The attacker took out $350,000 worth of ETH from Fulcrum, bZx’s lending platform by playing together several other DeFi protocols; Compound, Uniswap, and dYdX.

The attack happened this way:

The person borrowed 10,000 ETH from dYdX and then posted half the amount to DeFi protocol Compound and the other half to bZx. They then borrowed 112 wrapped Bitcoin (WBTC, which are ERC-20 tokens backed on a 1:1 ratio by Bitcoin.) With the amount on bZx, they entered into a short position for 112 WBTC, after which they sold the 112 WBTC from Compound on Uniswap. This move made the bZx sale very profitable. The attacker then repaid their dYdX loan and kept the proceeds from the short sale – 1,300 ETH. All this happened in a single transaction.

bZx admits the attack was “one of the most sophisticated” they’ve ever seen, which is big. Whoever pulled the attack must’ve had a very in-depth knowledge of all the protocols involved, together with their various tools. It also demonstrates the high levels of interoperability possible among various DeFi protocols – which is ideal, except when that interoperability can be maliciously manipulated. The attack had no precedent in DeFi, prompting the DeFi space to ask hard questions about the security future of DeFi.

In response to the attack, bZx in a slightly controversial move shut down Fulcrum.  Users and analysts noted bZx shut down the platform using a non-decentralized master key. But the firm defended the move, arguing, “the core of the debate here is whether we should be ruled by machines or economics. When you have an immutable contract that can’t be upgraded, you are ruled by machines. When the power to exist is distributed among representative stakeholders, you are ruled by economics. Both are valid methods for implementing decentralization.”

The Second Attack

And just when trading had resumed over the weekend and operations back to normal, attackers targeted bZx again, this time netting $633,000. This one took place just after 03:00 UTC Tuesday. The person(s) took out a flash loan of 7,500 ETH using 3, 518 ETH to purchase the stablecoin sUSD stablecoin from the issuer, which they then deposited as collateral for a bZx loan.

They then used 900 ETH to bid up the value of sUSD through Uniswap/Kyber then borrowed another 6,796 of ETH from bZx, using it to repay the 7,500 ETH loan and then pocketed the remaining value: 2, 378 ETH.

What’s shocking but also impressive is that the entire attack took place in just over a minute.

What are Flash Loans?

Flash loans are loans that users take and pay back in the same transaction so as to amplify their payouts. With a flash loan, a borrower loses nothing. The network can usually see whether or not a flash loan will be instantly repaid, and if not, it can reject all transactions associated with it. If it goes through, however, the lender gets a small fee, and the trader gains a profit, and everybody is happy.

But things aren’t always as simple as demonstrated by the bZx scenario. A flash loan carries great risk, especially with exploitable bugs in a platform’s code, or unreliable price feeds. In this case, the attacker(s) did not intend to simply buy low or sell high, but to deliberately manipulate vulnerable price markets.

Aftermath

Shortly after the first attack, investors started jumping from the bZx ship, but things seemed to get back to normal after the firm released a statement acknowledging the issue and addressing the way forward. 

As for the future of DeFi security, DeFi experts agree that this is a new territory; hence mistakes are bound to occur. Speaking to CoinDesk, Staked CEO asserted: “These are big risks. It’s a new category, it’s moving fast, and some things are going to break.”

The bZx team is now focused on securing the network and deterring future attacks. The firm already implemented a check that will disallow even overcollateralized loans in the future and has already put a cap on maximum trade sizes so as to limit the scope of potential attacks. It will also be implementing a Chainlink oracle to supplement Kyber’s price feed to be able to get time-weighted price info at any given time.

Categories
Crypto Daily Topic

ETH’s Bullish Behavior and the Case of Flash Loans

ETH has pulled a surprise on everyone Tuesday by posting bullish prices as high as $287 up from Monday’s low of $245.

ETH has pulled a surprise on everyone Tuesday by posting bullish prices as high as $287 up from Monday’s low of $245.

ETH has pulled a surprise on everyone Tuesday by posting bullish prices as high as $287 up from Monday’s low of $245.

This surge couldn’t have come at a weirder time; when Ethereum was on the spot for two attacks or ‘exploits’ on the Ethereum-based DeFI protocol bZx that saw it lose almost $1m worth of ETH.

 

The CEO of the crypto site The Block, Mike Dudas, tweeted Tuesday in acknowledgment of ETH’s Tuesday rally.

Respected economist Alex Kruger’s response to Dud’s tweet may explain this bullish behavior, though. While saying ETH did not actually ‘shrug off’ the exploit, he stated the attacks were naturally bullish for Ether since it’s “great advertising” and it “should generate interest in Ethereum from the finance industry and thus increase demand for ETH, even if the many DeFi platforms die in the near term because of this.” In essence, the attack raised Ethereum’s profile, its DeFi use case will be damned (at least in the short term.)

Flash Loans

The DeFi attack that helped reverse fortunes for ETH Tuesday was a result of the manipulation of flash loans. To understand flash loans, let’s look again at what Kruger had to say about them. In the same thread, he said, “flash loans provide access to instantaneous liquidity and collateral, and work on top of deterministic transactions that fully eliminate risk for both borrower and lender. This is extremely valuable, and the very best expression of programmable money…”

Flash loans are a new entry in the crypto world, a new decentralized finance innovation atop Ethereum’s blockchain. A flash loan allows a trader to take an uncollateralized loan to maximize the profits from a trade. They are ‘flash’ because they’re super-fast – in that the borrower repays the loan in the same transaction.

What happened with bZx is that the attackers exploited weak points in the protocol, making away with $300, 000 and around $650,000 worth of Ether.

Ensuing Fear, Uncertainty, and Doubt

After the Ethereum debacle, some individuals took the chance to pontificate about DeFi being an inherently flawed technology. But just like with the DAO attack in 2015, such incidents invariably point to weaknesses in a system, which in turn helps make it better and more resilient. Like with any technology, DeFi is undergoing ‘growing pains,’ and it helps to provide solutions to such imperfections rather than knocking everything down.  

What’s next for bZx

As for bZx, the firm will mitigate the damage of the attack in several ways, like liquidating collateral to cover a loan that the attack left uncovered, as well spread the loss across its user accounts. (Users will barely feel the impact of the loss, despite the magnitude of the attack.) The firm has also indicated plans of setting up an insurance fund as a long-term solution in case of a similar future incident. 

Perhaps DeFi proponents can look at the bright side: the attacks are a testament to DeFi taking up space in finance. The nascent technology is developing enough clout to warrant exploiting attacks.