Aave is a cornerstone of DeFi, transforming the way individuals access financial services by leveraging blockchain technology.
The protocol’s name, derived from the Finnish word for “ghost,” symbolizes its mission to create a seamless, transparent, and decentralized financial ecosystem.
What is Aave
Aave operates as a non-custodial protocol, allowing users to lend, borrow, and earn interest on crypto assets without any intermediaries – that means anyone can deposit digital assets as collateral and receive a line of credit with no credit checks.
By utilizing smart contracts, it ensures that users retain full control of their funds in a trustless environment. It was originally launched on Ethereum, but it has since expanded to several blockchains, including Polygon, Base, Avalanche, Gnosis, Optimism, and Arbitrum.
Aave on multiple blockchains
Lending and borrowing markets
Aave can be described as a liquidity protocol, featuring multiple lending and borrowing markets that function as a supply and borrow model.
Supplying to Aave
Users deposit assets and supply them to a liquidity pool, and in return, allow other participants to borrow from those pools using their own collateral.
When supplying assets to the protocol, you earn an interest rate determined by market dynamics and governance parameters. The higher the borrowing demand for an asset, the higher the interest rate paid to suppliers by borrowers.
In the case below, supplying WBTC to Aave earns you an interest rate of 0.01% APY. The WBTC can be used as collateral to borrow assets from the protocol, with a loan-to-value ratio of up to 73%.
WBTC market on Ethereum
When you deposit assets into Aave, you will receive aTokens, which are interest-bearing tokens that represent your deposits and accrue interest over time.
Borrowing from Aave
Borrowing tokens on the Aave Protocol is a great way to access liquidity without selling your assets.
By using the tokens you’ve supplied as collateral, you can unlock capital for other needs. That said, there’s a risk: if the value of your collateral drops below a certain level, your position could be liquidated.
The interest rates you’ll pay are dynamic – these rates are tied to the utilization rate—the percentage of available liquidity that’s been borrowed. When more liquidity is borrowed, the rates tend to go up to balance supply and demand.
Each reserve on Aave comes with tailored parameters to keep things fair and appealing for both borrowers and suppliers.
To avoid any issues, it’s important to keep an eye on your health factor, which shows how safe your borrowing position is.
Liquidations on Aave
The health factor is a key metric on the Aave Protocol that shows how safe your borrow position is.
If your health factor drops below 1, you’re at risk of liquidation. Each asset on Aave has its own liquidation threshold, which is the maximum percentage of its value you can borrow.
For instance, if you supply $10,000 in ETH with an 80% liquidation threshold and borrow $6,000 in GHO, your health factor would be 1.33, meaning you’re safe.
A health factor above 1 means you’re still in the clear, but it’s something you should keep an eye on. It changes depending on the value of your collateral and the amount you’ve borrowed.
If your collateral value goes up, your health factor improves. If it drops or you borrow more, it goes down, bringing you closer to liquidation.
There isn’t a one-size-fits-all “safe” health factor. It depends on the assets you’re working with. For example, if you’re dealing with stablecoins or assets closely tied to ETH, a lower health factor might be okay because they’re less volatile.
If your health factor falls below 1, liquidation kicks in. This happens when your collateral can no longer cover your borrowed amount. During liquidation, up to 50% of your debt is repaid by a liquidator, and a fee is taken from your collateral. Since liquidations are permissionless, anyone on the network can step in and initiate it.
Aave Innovations
One of Aave’s defining features is its dual-rate system, offering both variable and stable interest rates.
Variable rates adjust dynamically based on market demand and supply, making them ideal for short-term loans. On the other hand, stable rates provide predictability for borrowers looking for longer-term solutions.
Additionally, Aave pioneered the concept of flash loans, uncollateralized loans that must be repaid within a single transaction.
These loans are powerful tools for developers and advanced users, enabling use cases such as arbitrage, debt refinancing, and collateral swaps.
Aave V2 vs Aave V3
The release of Aave V2 brought significant improvements, including collateral swaps, debt tokenization, and an enhanced user interface.
However, Aave V3 introduced several standout features, including Portal which enables seamless cross-chain liquidity movement. Users can transfer assets across different blockchains within the Aave ecosystem without intermediaries, enhancing both accessibility and interoperability.
Aave V3 also introduced Isolation Mode, which isolates certain assets to mitigate systemic risk. Borrowing power for isolated assets is capped, protecting the platform’s overall stability.
Finally, Aave V3 introduces High Efficiency Mode, or E-mode, designed for low-volatility assets like stablecoins. This mode maximizes borrowing power by increasing the LTV of a selected category of assets, making capital usage more efficient.
This can enable a wave of new use cases such as high leverage forex trading, highly efficient yield farming (for example, deposit ETH staking derivatives to borrow ETH), and diversified risk management.
Aave vs. Morpho
While often compared to an emerging protocol called Morpho, Aave and Morpho serve distinct purposes within the DeFi ecosystem.
Aave is a full-fledged lending and borrowing protocol, offering features like flash loans, multi-rate options, and extensive blockchain support.
Morpho, on the other hand, focuses on optimizing returns for users by directly matching lenders and borrowers. This approach reduces inefficiencies in pooled lending systems and often leads to better rates. Morpho is also only available on Ethereum and Base for now.
The digital nature of cryptocurrencies means that it exists not in a tangible form but on the blockchain, a decentralized digital ledger.
As such, crypto wallets act as the key to accessing and managing these assets. However, unlike traditional bank accounts, crypto wallets do not come with the same level of built-in protection or easy recovery options.
This makes it vital to have a strong understanding of how wallets work and how to secure them properly.
What is a Crypto Wallet?
At its core, a crypto wallet is a tool that allows you to store, send, and receive cryptocurrency.
But unlike traditional wallets, which physically hold your money, a crypto wallet stores yourprivate keys—the cryptographic keys that give you ownership of the digital assets on the blockchain.
The wallet’s primary purpose is to provide a secure way to manage your keys and interact with the blockchain.
When you send or receive cryptocurrency, your wallet communicates with the blockchain to verify and record the transaction.
However, understanding how the wallet operates involves understanding the difference between public and private keys.
Public keys act like an account number and can be shared with others so they can send you funds. In contrast, private keys are like your password—only you should have access to them. If you lose your private key, you lose access to your digital assets, so securing it is paramount.
Types of Crypto Wallets
Crypto wallets come in several forms, each offering different levels of security and usability.
They generally fall into two broad categories: hot wallets and cold wallets. Hot wallets are connected to the internet and are more convenient for everyday transactions, while cold wallets are offline, offering enhanced security.
Hot wallets
Hot wallets include mobile apps, desktop wallets, and web-based wallets. These are ideal for those who frequently trade or transact with cryptocurrency, as they are accessible from various devices.
Examples of hot wallets include popular mobile apps like Coinbase Wallet, Trust Wallet and MetaMask, as well as desktop-based wallets like Exodus and Electrum.
The primary benefit of hot wallets is their convenience—accessing your funds is quick and easy. However, this convenience comes with a trade-off in security.
Since these wallets are always connected to the internet, they are more vulnerable to hacking and online threats. If your device is compromised, your assets could be at risk.
Cold wallets
Cold wallets, on the other hand, are offline and provide a much higher level of security.
These include hardware wallets such as the Ledger Nano X or Trezor, and paper wallets, which are simply physical documents containing your private keys.
Cold wallets are considered the gold standard for securing large amounts of cryptocurrency, particularly for long-term storage. While they offer superior protection against online threats, their main drawback is reduced accessibility.
Cold wallets are less convenient for day-to-day transactions, as they require you to physically access the device or paper to make transfers.
Custodial vs non-custodial wallets
Another key distinction in the crypto wallet world is between custodial and non-custodial wallets.
Custodial wallets are managed by third-party services, such as exchanges, which hold your private keys on your behalf. While this makes them more user-friendly, it also means you are entrusting a third party with the security of your assets.
Non-custodial wallets, in contrast, give you full control over your private keys, offering greater security and ownership of your digital assets. However, this means that if you lose your private keys or recovery phrase, you lose access to your funds.
In addition to these common types of wallets, there are also specialized wallets designed for specific purposes.
For instance, multi-signature wallets require more than one private key to authorize a transaction, making them ideal for businesses or joint accounts.
DeFi wallets are optimized for interacting with decentralized finance (DeFi) applications, and smart contract wallets enable users to interact with decentralized applications (dApps) built on blockchain platforms like Ethereum.
How to choose the right wallet
Selecting the right crypto wallet depends on several factors, including the purpose for which you intend to use it.
If you’re planning to hold cryptocurrency for the long term, a cold wallet is the most secure choice. For those who need frequent access to their funds, a hot wallet offers the convenience of quick transactions.
The type of cryptocurrency you plan to store is another important consideration—some wallets only support specific cryptocurrencies, while others, like Trust Wallet and MetaMask, support a wide variety of assets.
Ease of use is another important factor, especially for newcomers to the crypto space. A wallet that is intuitive and easy to navigate will make your experience much smoother. Security features, such as two-factor authentication (2FA), encryption, and backup options, should also be top of mind when choosing a wallet.
MetaMask
MetaMask is one of the most widely recognized hot wallets available, offering both a browser extension and mobile app for easy management of Ethereum and ERC-20 tokens.
MetaMask’s key features include seamless integration with these platforms, allowing users to connect directly to dApps, make transactions, and manage their assets.
Security is a priority, with features like password protection, a seed phrase backup for recovery, and compatibility with hardware wallets such as Ledger and Trezor for additional security.
Trust Wallet
Trust Wallet is a mobile wallet that stands out due to its broad support for various cryptocurrencies, including Ethereum, ERC-20 tokens, and BEP-2 and BEP-20 tokens.
The wallet also features a dApp browser and supports staking, making it an excellent choice for users who wish to engage with decentralized applications and staking platforms on mobile devices.
Security features include PIN codes, biometric authentication, and encrypted storage. The wallet’s intuitive interface and multi-asset support make it a great option for users who want to access and manage a wide range of assets securely from their mobile devices.
Exodus
Exodus is a multi-currency wallet with a visually pleasing interface and is available on both desktop and mobile platforms. It supports Ethereum, ERC-20 tokens, and various other cryptocurrencies, offering a user-friendly way to manage digital assets.
One of its standout features is the built-in exchange, allowing users to swap assets directly from the wallet without the need for an external exchange.
Exodus also includes a portfolio tracker, giving users a visual overview of their holdings. The wallet’s security features include a recovery phrase for backup and password protection, and it is compatible with hardware wallets like Trezor for those who want extra layers of security.
Phantom
Phantom is a wallet designed for easy use with the Solana blockchain, though it now supports Ethereum and ERC-20 tokens as well.
Known for its sleek interface, Phantom offers seamless integration with decentralized applications (dApps) and provides the ability to swap tokens directly from the wallet.
The wallet also allows users to manage their NFTs, making it a good choice for those engaging in the NFT ecosystem.
Security features include password protection, a backup seed phrase, and encrypted storage, ensuring that users’ assets remain safe.
Zerion
Zerion is an advanced wallet primarily designed for DeFi users who want to track and manage their Ethereum-based assets.
It acts as both a portfolio tracker and wallet, allowing users to easily monitor their holdings across multiple wallets.
Zerion’s integration with decentralized applications and multi-wallet support makes it an excellent choice for users with complex DeFi portfolios. With encrypted storage and a recovery phrase backup, Zerion offers strong security while providing a clean, easy-to-navigate interface for users.
Ledger Live is the companion software for the Ledger hardware wallets such as the Ledger Nano X and Ledger Nano S.
While primarily a cold wallet solution, it offers hot wallet features through Ledger Live, which supports Ethereum and ERC-20 tokens. Users can access and manage their assets through both the desktop and mobile apps.
Ledger Live offers robust security with PIN codes, two-factor authentication (2FA), and a recovery phrase. It is ideal for users who already own a Ledger hardware wallet and need to use hot wallet features on the go.
Trezor (Model T & Suite)
Trezor Suite offers both cold storage (via hardware) and hot wallet capabilities.
The software allows users to manage Ethereum and ERC-20 tokens while maintaining high security with the Trezor hardware wallet. The wallet features a large touchscreen for easy operation and provides robust security options, including PIN code protection, two-factor authentication (2FA), and a recovery phrase for backup.
Trezor is best suited for users who prioritize security and need a wallet that supports both hot and cold storage options.
Rainbow Wallet
Rainbow Wallet is a mobile wallet that emphasizes simplicity and aesthetics, providing an intuitive interface for managing Ethereum and ERC-20 tokens.
It supports NFTs, making it a great choice for users involved in the Ethereum NFT ecosystem. Rainbow also offers seamless integration with dApps, allowing users to interact with decentralized applications with ease.
With security features like seed phrase backup and biometric authentication, Rainbow ensures that users’ assets are protected. It’s particularly suited for users who want a visually appealing wallet with an easy-to-use interface for managing both their tokens and NFTs.
How to setup your crypto wallet
Setting up a crypto wallet is a relatively straightforward process, though the steps can vary depending on whether you’re using a hot or cold wallet.
The first step is to download the wallet application or purchase a hardware device from a reputable source.
Once you have your wallet, you will be prompted to create a new wallet and generate a recovery phrase, which is typically a series of 12–24 words.
This recovery phrase is your backup in case you lose access to your wallet, so it’s crucial to store it in a secure location. Do not store it digitally, as hackers could gain access to your wallet if they find it.
After generating your recovery phrase, set up additional security measures, such as a strong password and two-factor authentication (2FA), if available.
Backing up your wallet is essential for preventing the loss of access to your funds. You can back up your wallet by writing down the recovery phrase on paper and storing it in a safe place, such as a lockbox or safe deposit box.
Some wallet applications also support iCloud backup of encrypted private keys, so you can recover across multiple devices.
How to safeguard your digital assets
The safety of your digital assets is only as secure as the precautions you take.
One of the most important steps you can take is to use a strong, unique password for your wallet and related accounts.
Strong passwords are crucial for protecting your wallet from hackers, and it’s advisable to use a password manager to keep track of your passwords securely.
Enabling two-factor authentication (2FA) adds another layer of security. With 2FA, you will need to enter a code sent to your phone or email in addition to your password when logging into your wallet, making it much harder for attackers to gain access.
Wallet developers frequently release updates to address security vulnerabilities, so it’s essential to stay current with these releases. Be cautious of phishing attempts, as attackers often use deceptive tactics to trick you into revealing your private keys or recovery phrases.
Always verify the authenticity of any communication and avoid clicking on suspicious links.
Lastly, ensure that you use secure networks when accessing your wallet. Public Wi-Fi networks are vulnerable to hackers, so avoid accessing your wallet when connected to these networks. Instead, use a VPN or trusted private network for added security.
Managing and transacting safely
Once your wallet is set up and secured, it’s time to start managing and transacting with your cryptocurrency.
Sending and receiving crypto is simple, but there are a few important precautions to take. Always double-check the recipient’s wallet address before initiating a transaction.
If you make a mistake and send assets to the wrong address, there’s no way to reverse the transaction, and your funds could be lost permanently.
When making transactions, be mindful of transaction fees, which vary depending on the blockchain network you are using. If you’re sending a large amount of cryptocurrency, it’s worth paying a slightly higher fee to ensure that your transaction is processed quickly.
Another common mistake is sending cryptocurrency to the wrong blockchain.
Many wallets support multiple cryptocurrencies, and each cryptocurrency exists on a different blockchain. Ensure that the asset you are sending is supported on the blockchain of the recipient’s wallet.
Recovering your wallet
If you lose access to your wallet, all is not lost—provided you have your recovery phrase or private key.
Most wallets offer a recovery process that allows you to regain access by entering your recovery phrase. If you don’t have your recovery phrase or private key, unfortunately, your funds are unrecoverable.
Be cautious of third-party recovery services. Some companies promise to help you recover your wallet for a fee, but many are scams. Stick to trusted recovery methods, such as using your recovery phrase or private key, to restore access to your wallet.
Conclusion
Crypto wallets are essential tools for managing and safeguarding your digital assets.
Prioritize security, back up your wallet, and stay informed about emerging technologies to ensure your digital wealth remains safe for the long term.
The blockchain has transformed how we think about data, trust, and transactions.
What is a Blockchain?
At its core, blockchain is a digital ledger—a decentralized and distributed record of transactions or data stored across a network of computers.
Unlike traditional ledgers maintained by centralized entities, blockchain operates without a single point of control. Each transaction is recorded in a block, and these blocks are linked together in chronological order to form a chain.
Blocks linked together in a chain with each block referencing the previous block
The magic of blockchain lies in its ability to ensure transparency and immutability. Every transaction is publicly recorded on the ledger, and once added, it cannot be altered or deleted.
This feature eliminates the need for a trusted intermediary, as the system itself guarantees the integrity of the data. Imagine a spreadsheet that updates in real-time and is shared across countless computers worldwide.
Blockchain’s decentralized nature is a game-changer. Traditional systems rely on central authorities like banks, governments, or corporations to manage and verify transactions. Blockchain, on the other hand, leverages a network of participants (nodes) to validate and store data.
This ensures that no single entity can control or manipulate the system, making it incredibly resilient and secure.
How does the blockchain work?
When a transaction on the blockchain happens, it is grouped with others to form a block.
This block contains a unique identifier known as a hash, the transaction data, and the hash of the previous block, creating a secure and verifiable chain.
Before a block is added to the chain, it must be validated by the network through a consensus mechanism.
This process ensures that all participants agree on the legitimacy of transactions. Common consensus methods include Proof of Work (PoW), where miners solve complex mathematical puzzles, and Proof of Stake (PoS), where validators stake their cryptocurrency as collateral to process transactions.
Once validated, the block is added to the chain and becomes part of the permanent ledger. Each node in the network maintains a copy of the blockchain, ensuring redundancy and security. Even if one node fails or is compromised, the network continues to function seamlessly. This distributed architecture is what makes blockchain so robust and trustworthy.
Blockchain’s use of cryptography further enhances its security. Public and private keys ensure that only authorized parties can access or initiate transactions. This cryptographic foundation not only protects data but also fosters trust in the system.
Key Features of Blockchain
Decentralization is the hallmark of blockchain technology. Unlike traditional systems controlled by a single authority, blockchain relies on a network of nodes to validate and store data. This decentralization eliminates single points of failure and enhances security and resilience.
Transparency is another defining feature. Every transaction is publicly recorded on the blockchain, allowing anyone to verify its authenticity. This level of openness fosters trust and accountability, making blockchain an ideal solution for systems prone to fraud or corruption.
Immutability ensures that once data is recorded on the blockchain, it cannot be altered or deleted. This feature is particularly valuable for maintaining accurate and tamper-proof records, whether in financial transactions, supply chain tracking, or digital identity management.
Security is embedded in blockchain’s design. Cryptographic algorithms protect data, while consensus mechanisms prevent unauthorized changes. The distributed nature of the network further enhances its resilience against attacks or failures.
Blockchain’s Role in DeFi
Decentralized Finance, or DeFi, is an ecosystem of financial applications built on blockchain technology. By leveraging blockchain, DeFi eliminates intermediaries like banks and brokers, enabling peer-to-peer transactions and financial services.
Blockchain provides the foundation for DeFi’s core functionalities. Smart contracts, which are self-executing programs on the blockchain, automate and enforce agreements without the need for intermediaries. For example, a DeFi lending platform might use a smart contract to automatically disburse a loan once collateral is provided, and enforce repayment terms without human intervention.
The transparency of blockchain ensures that all transactions are visible and verifiable, reducing the risk of fraud. Additionally, blockchain’s global accessibility allows anyone with an internet connection to participate in DeFi, democratizing access to financial services.
Moreover, blockchain enables the creation of decentralized exchanges (DEXs), stablecoins, and tokenized assets, all of which are integral to the DeFi ecosystem. These innovations not only replicate traditional financial services but also improve upon them by offering greater efficiency, lower costs, and enhanced security.
Challenges and Limitations of Blockchain
Despite its immense potential, blockchain is not without challenges. Scalability is a significant concern. As more transactions are added to the blockchain, the system can become slower and more resource-intensive. Solutions like Layer 2 scaling and sharding are being developed to address this issue.
Energy consumption is another drawback, particularly with PoW-based blockchains like Bitcoin. The computational power required for mining has raised environmental concerns, prompting a shift toward more sustainable consensus mechanisms like PoS.
Regulatory uncertainty also poses a challenge. Governments worldwide are grappling with how to regulate blockchain and cryptocurrency, creating a complex and evolving legal landscape. Clear and consistent regulations are needed to foster innovation while protecting users.
Finally, blockchain’s complexity can be a barrier to adoption. Many people find it difficult to understand or use, highlighting the need for user-friendly interfaces and educational resources.
Conclusion
Blockchain is more than just a technology—it’s a paradigm shift. By enabling decentralized, transparent, and secure systems, it has the potential to revolutionize industries and empower individuals.
As the backbone of DeFi, blockchain is driving a financial revolution that promises greater inclusivity, efficiency, and innovation.
DeFi, or decentralized finance, is quickly reshaping the way we think about money, banking, and financial services.
What is DeFi?
Imagine a world where you can send money, earn interest, borrow, and trade assets—all without relying on a bank or financial institution.
That’s the promise of DeFi. It uses blockchain technology to create a financial system that operates without intermediaries.
Instead of relying on centralized banks or brokers, DeFi employs smart contracts—self-executing programs on a blockchain—to automate and manage transactions.
This means you can access financial services anytime, anywhere, as long as you have an internet connection and a crypto wallet.
DeFi is built on the principles of transparency and inclusivity. Unlike traditional finance, where access is often limited by geographic, economic, or political factors, DeFi aims to democratize finance.
It’s a financial system designed for everyone, where control of your assets remains in your hands, not with institutions. This system doesn’t just eliminate the middleman—it redefines how trust is established in financial transactions.
With DeFi, you don’t need to trust a bank to approve your loan or a broker to settle your trade. Smart contracts handle these tasks with precision, eliminating delays and potential errors. Moreover, these contracts are open-source, allowing anyone to inspect the code and verify its integrity.
The Core Principles of DeFi
To understand why DeFi is revolutionary, it’s essential to grasp its core principles.
Decentralization is at the heart of it all. Instead of a single entity managing transactions, DeFi relies on a network of computers to maintain the system.
This ensures that no single point of failure can disrupt operations. Transparency is another critical component; every transaction is recorded on a public ledger, allowing anyone to verify the process. This openness builds trust and accountability.
DeFi’s transparency contrasts starkly with the opaque nature of traditional finance. Banks, for instance, operate behind closed doors, making decisions that can be difficult to scrutinize.
In contrast, DeFi’s blockchain ledger is accessible to anyone with an internet connection. This democratization of information fosters a level of trust and collaboration unseen in conventional financial systems.
Accessibility is another cornerstone of DeFi. Traditional banking systems often exclude people without documentation, credit history, or geographical proximity.
In contrast, DeFi welcomes anyone with a crypto wallet. This opens the door to financial tools for billions of unbanked and underbanked individuals worldwide. With DeFi, the barriers to entry are minimal, fostering inclusivity and empowerment.
Interoperability further sets DeFi apart, allowing various applications to interact seamlessly. This composability means you can stack different financial tools to create customized solutions, much like building with Lego bricks.
For instance, you can use one DeFi platform to earn interest on your savings and another to take out a loan.
Key Components of DeFi
DeFi isn’t just one thing; it’s an entire ecosystem made up of various components, each reimagining traditional financial services.
Smart contracts are the backbone, enabling automated transactions without the need for middlemen.
Platforms like Aave and Compound allow users to lend or borrow assets, earning interest or accessing credit directly from peers.
Compound V3 lending market
Decentralized exchanges (DEXs), such as Uniswap, facilitate peer-to-peer trading of cryptocurrencies. Unlike traditional exchanges, they operate without a central authority, giving users full control over their trades.
Swapping between tokens on Uniswap
These platforms use liquidity pools, where users contribute funds to enable seamless trading. In return, contributors earn rewards, creating an ecosystem of shared incentives.
Stablecoins, like USDC and DAI, address the issue of volatility in cryptocurrencies by maintaining a stable value pegged to fiat currencies.
These coins are essential for everyday transactions and as a store of value. They provide a bridge between the volatile world of crypto and the stability of traditional money, making them indispensable in the DeFi landscape.
Yield farming and liquidity pools provide opportunities for users to earn rewards by contributing to the ecosystem, underpinning DeFi’s economic incentives.
Liquidity pools on Uniswap
These mechanisms reward participants for providing liquidity or staking assets, fostering a self-sustaining cycle of growth and participation. However, they also require users to understand the risks and mechanics of these complex systems.
Benefits of DeFi
The advantages of DeFi are compelling, especially for those who have felt excluded or underserved by traditional finance.
With DeFi, a person in a remote village with internet access has the same financial tools as someone in a major financial hub. This inclusion can empower millions, if not billions, of people worldwide.
Another significant benefit is cost efficiency. By removing intermediaries, DeFi reduces transaction fees, making it more affordable to send money, trade assets, or earn interest.
Traditional financial services often come with hidden fees and long processing times. DeFi simplifies these processes, providing faster and cheaper alternatives.
DeFi transactions often settle in minutes, compared to the days it can take for traditional bank transfers.
This speed is particularly valuable in a globalized world where cross-border transactions are common. DeFi’s efficiency ensures that users can access their funds and complete transactions without unnecessary delays.
Furthermore, DeFi gives you complete control over your finances. There’s no need to trust a bank to safeguard your money or approve your transactions—you hold the keys to your wallet and your future.
Risks and Challenges
As with any emerging technology, DeFi comes with its fair share of risks. Market volatility is a significant concern. Cryptocurrency prices can fluctuate wildly, affecting the value of your holdings and returns.
This volatility can be a double-edged sword, offering opportunities for profit but also exposing users to significant risks.
Security is another issue; while smart contracts are powerful, they are not immune to bugs or exploits. A single vulnerability in the code can lead to substantial losses.
Value lost to crypto hacks over the years. Source: Chainalysis
Hackers often target DeFi platforms, and despite rigorous testing, some platforms have suffered high-profile breaches. Users must exercise caution and choose reputable platforms.
Regulatory uncertainty also looms over DeFi. Different countries have different stances on cryptocurrency, and evolving laws could impact DeFi platforms and users.
Governments are grappling with how to regulate this decentralized landscape, and future regulations could shape the trajectory of DeFi significantly.
Finally, the complexity of DeFi can be daunting for newcomers. The technical jargon, intricate processes, and unfamiliar tools can make it challenging to get started.
However, with patience and the right resources, these hurdles can be overcome. Educational initiatives and user-friendly platforms are helping bridge the gap for beginners.
Real-World Use Cases
DeFi isn’t just a theoretical concept; it’s already making a tangible impact.
Cross-border payments are faster and cheaper using DeFi platforms, providing a lifeline for people who depend on remittances. These platforms bypass traditional banking networks, reducing fees and delays for millions of users worldwide.
Lending and borrowing platforms enable users to earn competitive interest rates or access credit without traditional requirements like a credit score.
These platforms democratize lending, allowing anyone to participate regardless of their financial background. Borrowers can secure loans instantly, while lenders earn passive income on their assets.
Tokenized assets are another exciting use case. They allow for fractional ownership of real-world assets, such as real estate or fine art, making investments more accessible.
This innovation opens new avenues for wealth creation, enabling users to diversify their portfolios and participate in markets previously out of reach.
Decentralized insurance platforms offer an alternative to traditional insurers, letting users pool risks and provide coverage through smart contracts.
These platforms are transforming the insurance industry by reducing costs, increasing transparency, and offering customizable coverage options. From crop insurance for farmers to health coverage for individuals, the possibilities are vast.
How to Get Started with DeFi
You’ll need a crypto wallet, such as MetaMask or Trust Wallet, to store and manage your digital assets.
Once your wallet is set up, you can acquire cryptocurrency through a centralized exchange like Binance or Coinbase.
Transfer these funds to your wallet to start exploring DeFi platforms.
Begin with beginner-friendly platforms like Uniswap for trading or Aave for lending and borrowing.
These platforms are designed with intuitive interfaces, making them accessible even for newcomers. Start by exploring basic functions, such as swapping tokens or earning interest, to build your confidence.
Always prioritize security by safeguarding your private keys and enabling two-factor authentication. Your wallet is your gateway to DeFi, and losing access to it can mean losing your funds. Use hardware wallets for added security and double-check the URLs of platforms to avoid phishing scams.
It’s wise to start small and experiment with lower amounts to familiarize yourself with how DeFi works.
As you gain confidence, you can explore more complex strategies, such as yield farming or liquidity provision. The DeFi ecosystem is vast, and taking a step-by-step approach ensures a smooth learning curve.
The Future of DeFi
DeFi is still in its early stages, but its potential is vast. Innovations like Layer 2 scaling solutions are making DeFi more efficient by reducing transaction costs and increasing speed.
These advancements address one of DeFi’s biggest challenges: the high fees associated with blockchain transactions during peak usage.
Interoperability between blockchains is improving, creating a more connected and versatile ecosystem.
As user interfaces become more intuitive, DeFi will become accessible to a broader audience, driving mainstream adoption.
Developers are focusing on creating user-friendly applications that cater to non-technical users, bridging the gap between complexity and accessibility.
The line between traditional and decentralized finance is beginning to blur. Banks and financial institutions are taking notice, with some integrating blockchain technology into their operations.
This convergence could lead to a hybrid financial system that combines the best of both worlds. The future of DeFi is not just about disrupting traditional finance; it’s about creating a system that works for everyone.
At first glance, ETH and WETH might seem interchangeable, but in reality, they serve different purposes and understanding the difference is key to navigating DeFi.
What is ETH?
Let’s start with ETH, which stands for Ether, the native cryptocurrency of the Ethereum blockchain.
Ethereum is a decentralized, open-source blockchain that enables the creation of smart contracts and decentralized applications (dApps). Ether (ETH) serves multiple functions within the Ethereum ecosystem, such as:
Payment for transaction fees for transactions on the Ethereum blockchain or its L2 blockchains
Staking
Participating in DeFi protocols like lending, borrowing, and trading
ETH is the most well-known and widely used cryptocurrency after Bitcoin, and it’s the backbone of the entire Ethereum network. You can think of ETH as the fuel that powers the Ethereum blockchain.
However, when it comes to interacting with smart contracts, decentralized exchanges (DEXs), and other DeFi protocols, there are certain limitations to ETH, as it does not follow the standard used in DeFi applications.
What is WETH?
WETH stands for Wrapped Ether, or ETH that has been wrapped into a token that conforms to the ERC-20 token standard.
The ERC-20 standard is the technical specification that defines how tokens on the Ethereum blockchain should behave, making them interoperable with a wide range of dApps, wallets, and smart contracts.
Why Wrap ETH?
ERC-20 tokens can be easily traded and used in DeFi applications, while ETH cannot always be directly used in all of these protocols.
For example, decentralized exchanges (DEXs) like Uniswap and SushiSwap require ERC-20 tokens for liquidity pools, and some smart contracts expect tokens to be ERC-20 compliant.
When you wrap your ETH, you’re essentially exchanging it for an ERC-20 token that has the same value and is fully backed 1:1 by ETH.
This makes WETH compatible with the broad range of DeFi protocols that only accept ERC-20 tokens.
How to wrap ETH to WETH
Wrapping ETH is a simple process – in fact, you can do it through most Ethereum-based wallets or DeFi platforms that support the feature such as MetaMask.
When you wrap your ETH, you send it to a smart contract that locks your ETH and then issues an equivalent amount of WETH in return.
You can then use your WETH in various DeFi protocols, including DEXs, lending platforms, and liquidity pools.
Conversely, you can also unwrap WETH back into ETH at any time through the same smart contract. This is done on a 1:1 basis, so for every WETH you have, you can get back the same amount of ETH.
Key Differences Between ETH and WETH
Now that we know what ETH and WETH are, let’s take a closer look at the key differences between the two:
Feature
ETH (Ether)
WETH (Wrapped Ether)
Blockchain Standard
Native asset on the Ethereum blockchain
ERC-20 token (wrapped version of ETH)
Interoperability
Not ERC-20 compliant, so it’s less compatible with DeFi protocols
Fully compatible with DeFi protocols that accept ERC-20 tokens
Purpose
Used for transactions, gas fees, staking, and more
Used to enable ETH to participate in DeFi and dApps that require ERC-20 tokens
Convertibility
Can be used directly on the Ethereum network
Can be converted 1:1 into ETH (wrapped and unwrapped)
Use in DeFi
Not always directly supported by DeFi protocols
Can be used in liquidity pools, decentralized exchanges, and other DeFi services
When Should You Use ETH vs WETH?
The decision to use ETH or WETH largely depends on what you want to do within the Ethereum ecosystem:
Use ETH when you need to pay for gas fees or interact directly with the Ethereum network without needing to engage with DeFi protocols or dApps that require ERC-20 tokens.
Use WETH when you’re interacting with a DeFi protocol or decentralized exchange that requires ERC-20 tokens. If you’re adding liquidity to a pool, trading on a DEX, or staking, you’ll likely need WETH.
Conclusion
In summary, ETH and WETH serve different, yet complementary, roles in the Ethereum ecosystem.
ETH is the native cryptocurrency of the Ethereum blockchain, and it plays a crucial role in paying for transactions and securing the network.
WETH, on the other hand, is an ERC-20 version of ETH that allows you to use your ETH in decentralized finance applications that require ERC-20 tokens.
Brahma is a non-custodial crypto smart wallet that lets users program and automate smart actions such as recurring purchases, rebalance yield positions and transaction bundling.
It is also a multi-chain account designed for everything — swaps, lending, automations, with the use of a single address.
Brahma comes in two versions – a simple version for crypto investors, and a pro-version called Brahma Pro for advanced users and teams.
Brahma Console
The Brahma Console home page provides you a portfolio overview of your smart account.
Brahma supports multiple blockchains such as Base, Arbitrum, Scroll, Ethereum, Blast, Mode and Sei. You can easily add new blockchains with a toggle by clicking on the “Add Network” button.
With Brahma, you will have the same address on every enabled chain. It currently supports 8 networks, with more to be added.
The History tab also lets you view your transaction history for the smart wallet. You can easily filter by asset, account or blockchain.
Swap between assets
Swap allows you to exchange between different tokens like how a DEX aggregator would. It showcases the best rates when swapping across different DEXes and lets you pick the aggregator of choice.
Swap settings lets you choose the slippage, and enable the swap venues for your transaction.
This feature is similar to meta DEX aggregators like DeFiLlama Swap which aggregates multiple DEX aggregators into one interface.
Lending and borrowing
In the lending and borrowing page, you can lend and borrow assets on Aave V3.
The standout feature here is transaction bundling and batching, which lets you bundle recursive transactions like lending and borrowing in one transaction, or swapping borrowed collaterals into other tokens, without the need to directly connect to Aave.
You can also track your health factor and the remaining borrowing power you have from the UI itself.
DeFi automation and templates
Under Strategies, you can automate DeFi strategies within a single interface.
Morpho Earn strategy
Under the Morpho Earn strategy, you can select a number of Morpho Vaults to deposit your assets in, and deposit into them with a single click.
Brahma also supports multiple deposits with multiple tokens, even tokens outside the vault tokens where Brahma will swap through its meta aggregator.
Morpho Yield Optimizer
The Morpho yield optimizer maximizes your yield by continuously allocating assets to the highest yielding vaults within Morpho.
You can select the asset, amount and frequency to rebalance, and the strategy would automatically start rebalancing and adjusting positions at your chosen frequency for optimal yield.
Currently this feature only supports WETH and USDC on Base and it prioritizes the highest liquidity vaults. MORPHO tokens can also be claimed in the same interface.
TWAP / DCA automation
In the TWAP / DCA automation, you can automate the execution of a large trade on the market price and split them into smaller bundles, with randomness in timing and sizing.
It is currently supporting in two chains – Ethereum and Arbitrum, and you must have sufficient balance of the input token (excluding ETH) within your Brahma wallet to cover the total trade amount for the duration of the automation.
An execution fee of 0.15% will be charged by Brahma for successful TWAP orders.
Bridge
Similar to swap aggregation, bridge allows you to transfer assets across enabled blockchains with ease.
Bridge supports multiple bridges including third-party bridges like Across and official bridges like CCTP to find the best bridging rates.
Upgrading to Brahma Pro
Upgrading to Brahma Pro is a irreversible change, but it brings you new advanced features such as multi-owner and multi-sig support to sign transactions.
It also comes with sub-accounts and other advanced features that might be more useful to professional traders.
Brahma Rewards
Brahma Rewards is a system where on-chain activity through your Brahma account contributes to a reward program, while accumulating points known as Karma.
These activities can also unlock badges and new levels on the Brahma app, which may unlock new experiences and rewards in the future.
Each badge corresponds to a specific action or achievement, such as making deposits, executing swaps, or exploring multi-chain strategies. Completing these tasks earns you badges.
As you collect badges, you unlock higher levels in the Brahma system. Each level comes with greater rewards and Karma boosts.
To participate and earn rewards:
Deploy an account through Brahma
Deposit a minimum of $100 in supported assets to qualify for rewards. Supported assets include ETH, staked ETH (e.g., stETH, cbETH, frxETH), WBTC, TBTC, and stablecoins (USDC, USDT, DAI, FRAX, USDe, crvUSD, USDB, GHO)
Every Monday at 4 PM UTC, your Karma score is updated, ensuring your current activity is reflected in your score.
EtherFi’s weETH, a wrapped version of eETH, is designed to enhance flexibility and composability for Ethereum stakers, and increase rewards accrued to them by accruing restaking yield in addition to staking yield.
Currently with more than US$8.4B locked, EtherFi is one of Ethereum’s flagship staking protocols.
What is eETH?
Before we explore weETH, it’s important to understand the concept of eETH.
eETH is the native liquid staking token of EtherFi, a decentralized, non-custodial liquid staking protocol for Ethereum.
eETH allows Ethereum stakers to retain control over their keys while delegating the actual staking of their ETH to approved validators.
One of the key features of eETH is its integration with EigenLayer, a solution that enables the restaking of staked Ethereum.
Restaking is a concept where users can delegate their staked ETH to multiple services, including security and validation for other networks, to earn additional rewards.
But while eETH is a rebasing ERC-20 token — meaning that its balance adjusts automatically as rewards accrue — wrapping eETH to weETH allows eETH to be composable and used across DeFi, without the balance changing complexities for accounting DeFi positions.
What is weETH?
weETH is a wrapped version of eETH, but with a key difference: it is non-rebasing.
Unlike eETH, which automatically adjusts its balance to reflect staking rewards, weETH maintains a fixed balance and becomes a reward-bearing token.
This change is primarily intended for users who want to interact with the broader DeFi ecosystem while still receiving the staking rewards generated by their Ethereum holdings.
In simpler terms, weETH gives users the ability to stake their ETH, earn rewards (both from Ethereum staking and EigenLayer), and then use weETH in other DeFi protocols such as Balancer, Pendle, Aura, and more.
It’s a way to unlock liquidity while keeping your assets staked and earning rewards.
Key Features of weETH
Non-Rebasing and Composability The most significant difference between eETH and weETH is that weETH is non-rebasing.
This means the amount of weETH you hold will remain constant, unlike eETH which automatically increases as staking rewards are accrued.
As a result, weETH is much more composable with other DeFi protocols, meaning it can be used in lending, liquidity pools, and yield farming without breaking the user’s ability to participate in staking rewards.
Integration with DeFi Ecosystem EtherFi is working closely with multiple DeFi partners like Balancer, Gravita, Pendle, Aura, and Maverick to integrate weETH into their platforms.
This means you can use weETH across multiple decentralized finance protocols without sacrificing the benefits of staking rewards.
Rewards from Multiple Sources When you stake ETH through EtherFi and mint eETH, you receive rewards from both the Ethereum consensus layer (via staking rewards) and EigenLayer (via restaking).
When you wrap eETH into weETH, you continue to earn both of these rewards, along with loyalty points that contribute to governance and potential future benefits.
Liquidity without Lock-Up Unlike other liquid staking protocols where tokens might be locked and non-composible, weETH enables you to use your staked assets in other DeFi protocols, creating more opportunities for yield generation and liquidity provision, while still earning the benefits of Ethereum staking.
How to Mint and Use weETH
Minting weETH is a simple process on the EtherFi DApp.
Users can stake their ETH to receive eETH at a 1:1 ratio and then wrap their eETH into weETH, or even directly to weETH.
Once you have minted weETH, you can participate in various DeFi activities, like providing liquidity or borrowing assets, on platforms that support weETH.
You can mint on multiple blockchains including Ethereum, Base, Linea and Blast.
The Future of weETH and EtherFi’s Ecosystem
EtherFi’s vision is to create a decentralized staking infrastructure that empowers users by giving them full control over their assets.
As the ecosystem grows, EtherFi plans to expand its partnerships, integrate with more Layer 2 solutions, and continue innovating with new wrapped tokens such as weETHk and eBTC, which expands the restaking protocols beyond EigenLayer and collateral beyond ETH.
At its core, JLP is the engine that drives the Jupiter Perpetuals exchange.
It’s where liquidity providers (LPs) pool their assets – similar to an index fund – with tokens such as USDC, USDT, SOL, wBTC, and ETH, to support leveraged trading.
In return, LPs earn a share of the trading fees, creating a win-win dynamic between traders and providers. The current yield is 14% APY.
Currently, JLP has a total value locked of US$1.6B, consisting of approximately 47% SOL, 10% ETH, 12% WBTC and 33% in stablecoins, with a cap of US$1.75B.
The Role of JLP in the Ecosystem
JLP isn’t just a static pool of funds – here’s how it works:
Traders borrow assets from the pool to open positions with leverage on Jupiter Exchange
They pay fees to the pool based on the assets borrowed, ensuring that the LPs are compensated for their contributions
This dynamic structure eliminates the traditional funding rate model and instead introduces hourly borrowing fees, keeping the system fluid and equitable.
Participating as a Liquidity Provider
If you are keen to participate in providing liquidity to JLP, you can add liquidity by acquiring JLP tokens, which represent your stake in the pool and can be obtained via Jupiter Exchange.
When you contribute to JLP, your assets are repriced in USD, reflecting the overall Total Value Locked (TVL) in the pool.
How JLP LPs Earn Yield
As an LP, your yield comes from multiple sources:
Trading Fees: Every time a trader opens or closes a position
Borrowing Fees: Hourly charges on leveraged trades
Spot Trading Fees: For standard asset swaps
Minting and Burning Fees: Linked to JLP token transactions
Of the total fees collected, 75% is reinvested directly into the pool, increasing its value over time, the remaining 25% supports Jupiter’s operations, ensuring a sustainable ecosystem.
What are the risks associated with JLP?
Every opportunity comes with its risks, and JLP is no exception, participating in a liquidity provider for JLP has the following risks:
Market fluctuations: In bull markets, holding JLP may underperform compared to simply holding individual tokens like BTC or SOL, since you are also holding stablecoins as part of the pool holdings
Trader profits: When traders profit, the pool may lose value, as payouts are drawn directly from its assets
Volatility: The mix of stablecoins and crypto can lead to fluctuations in the pool’s overall value
Despite these risks, the system has built-in safeguards, such as fee adjustments, to manage potential imbalances.
Using JLP for a long-term investment
JLP isn’t just about short-term gains—it’s about building a sustainable foundation for liquidity and growth.
The price of JLP over time has seen a consistent uptrend.
With every fee reinvested, your stake in the pool gains value, creating a virtuous cycle of appreciation.
Drift is a perpetuals exchange on Solana that offers up to 20x leverage on perpetuals, and up to 5x leverage on spot and swap tokens. In addition to that, it offers borrow and lending and liquidity provision features for users to earn yields on their assets.
Drift Borrow / Lend
Drift Borrow / Lend is a decentralized lending market similar to Aave and Compound where you can deposit spot assets like SOL, USDC, PYUSD and earn lending yield by lending your assets to borrowers.
For example, choose a lending market like USDC, and earn the lending yield shown (in this case it’s 18.2% APR).
After depositing, you can also borrow other tokens from the market by paying a borrowing cost (shown as borrow APR).
Drift supports a wide variety of lending and borrowing markets from stablecoins like USDC, USDS and sUSDe to altcoins like DRIFT, W, JUP, WIF and more.
Drift Vaults
Drift Vaults are externally managed yield farming vaults where deposits are taken to earn a yield depending on the strategy used.
This is similar to a hedge fund concept, where the fund pools investors’ funds to invest in a strategy, and takes a cut of the profits.
Within Drift Vaults, you can find interesting strategies like the delta neutral JLP strategy which actively hedges and manages the JLP position to earn a close to risk-free return on USDC.
Multiple providers may offer similar strategies, so you might want to consider the nuances of each strategy provider, such as their on-chain infrastructure, fees and safety to minimize losses and spreads.
For example, Trade Neutral, Vectis Finance, Circuit and Gauntlet all offer delta neutral JLP strategies.
Insurance fund vaults
For those looking for a safer alternative to yield, Drift also offers insurance fund vaults where you can deposit USDC, SOL and DRIFT tokens to earn a portion of fees from perp trades, borrows, and liquidations.
The insurance fund is the first protocol backstop to maintaining the solvency of the exchange in the event of any bankruptcies and it is funded by premiums collected from liquidation fees, trading fees, borrowing and lending fees.
When depositing here, be aware that there is a 13-day cooldown period after an un-staking request is submitted.
dSOL staking
Solana holders can also stake their SOL with Drift for dSOL, and earn yield from a combination of sources such as MEV, SOL inflation and priority fees. The current yield is 11%.
Conclusion
Overall, we think that Drift offers a variety of useful products where traders and investors alike can use Drift for trading and earning yield. We especially like their Drift Vaults for yield farming, and also their perps exchange for trading up to 20x leverage.
Sonic is an EVM layer-1 blockchain platform that offers developers attractive incentives and powerful infrastructure, powering the next generation of decentralized applications.
Sonic delivers exceptional performance, supporting up to 10,000 transactions per second and enabling developers to scale their applications without limits while ensuring smooth user experiences.
Connecting MetaMask to Sonic
Switch the connected blockchain by clicking on the tab saying Main Ethereum Network, we need to add Sonic.
