Business,Operations,GuideModule 4.1

Module 4.2

DeFi Example – Aave (Lending/Borrowing Platform)

Aave is a prominent decentralized finance (DeFi) protocol that Bittrees engages with for treasury management. In simple terms, Aave is a decentralized bank or money market. It allows users to deposit cryptocurrency assets into liquidity pools and earn interest (as lenders), and others to borrow those assets by providing collateral and paying interest.

Here’s how Aave works in brief:

  • If Bittrees has idle assets we can deposit them into Aave’s smart contract pools. These assets then acces our abilty to tap into their credit market. For providing liquidity, we earn interest (yield) over time, paid by the borrowers. This is similar to earning interest on a savings account or a fixed deposit, but the rates are determined by algorithmic supply and demand on Aave. Aave issues us aTokens (like aWBTC if we deposit WBTC) which represent our claim on the stake which accrues interest automatically.
  • If Bittrees needs liquidity (for example, wants to take a loan of USDT without selling holdings), we can deposit collateral (perhaps we have holdings of another token we don’t want to sell, like BTC) and then borrow against it. Aave will allow borrowing typically up to a certain percentage (loan-to-value, LTV) of the collateral’s worth. We then pay interest on the borrowed amount until we repay. This is akin to taking a collateralized loan from a bank (like a home equity loan – your house is collateral, you borrow cash).
  • A key aspect is over-collateralization: Aave (and similar platforms) require that collateral > dollar denominated loan value by a margin, so if the collateral value falls (due to market changes), the loan can be liquidated to repay lenders. It’s a protective measure since there’s no credit check – the collateral is the backstop.

For example, if Bittrees deposits 100 WBTC as collateral, Aave might allow borrowing up to 73 WBTC worth of other tokens (73% LTV). If we borrow 50 WBTC worth of USDT stablecoin, we wouldn't have to pay interest on that USDT loan, but if WBTC price drops too much or if the interest accruals at a quicker rate than the value growth of WBTC, the collateral might be liquidated to cover the loan.

Operational use: Bittrees could use Aave to earn yield on treasury funds instead of leaving them idle. Or we might use it to obtain a different token quickly without selling current holdings (e.g., borrow stablecoins to pay for an expense while keeping our bitcoin for long term, then later repay the loan). On the operations side, someone might be tasked with executing a deposit or monitoring a loan’s health on Aave.

To draw a real-world analogy, think of Aave like a credit union:

  • Members deposit money and earn interest.
  • Other members can take loans if they provide collateral (like a secured loan).
  • Everything is governed by transparent rules (smart contracts) rather than a bank manager, and interest rates adjust by algorithm rather than central decision.

Important: Using Aave (or any DeFi) requires interacting with the dApp’s frontend or writing to the smart contract via the wallet. That means paying gas fees on Ethereum or another blockcahin network each time we deposit, withdraw, borrow, or repay. Also, DeFi protocols carry smart contract risk – though Aave is well-audited and established, part of the operations due diligence is understanding risks before allocating large funds.

For more info or training, you might refer to Aave’s documentation. But as a summary: “AAVE – Borrowing/Lending Platform: deposit tokens as collateral, borrow other tokens at variable APYs”. The question in our internal training, “What is the difference between Aave v2 and v3?” refers to protocol upgrades (v3 introduced efficiency improvements and new features like isolated markets). That level of detail is beyond onboarding scope, but know that DeFi protocols iterate.

Module 4.3 -- Non-Fungible Tokens (NFTs) and Token-Gated Access