Palpably high? This sounds hyperbolic.JonnyDVM wrote: ↑Thu Apr 15, 2021 9:08 pmAs someone who is getting a kick out of playing musical chairs with this, to park six figures into AAVE would be insanity. The risk is palpably high. It is the exact opposite of safe.Prahasaurus wrote: ↑Thu Apr 15, 2021 2:57 pmActually, right now it's 14.93%.... Actual rates are here: https://aave.comHomerJ wrote: ↑Thu Apr 15, 2021 2:34 pmOf course there is risk. There is definitely a chance of losing some money, maybe even all your money, that does not exist with a bank.xraygoggles wrote: ↑Thu Apr 15, 2021 12:53 pm Serious question: is there counterparty or smart contract risk keeping your $ on Aave? I have a small allocation of USDC there, but I'm wary of putting large sums (6 figures, for example).
It's not just like your bank at all. I WANT the bank to do the paperwork and due diligence, and check credit history of people borrowing from the bank, partly using my money that I deposited with the bank. The bankers aren't loaning money out at 13%, and keeping 12.95% of it because they are evil. They don't make those loans because they are bad loans...Start earning variable rates of around 8-10% on average. Right now the rate is 13%, as many are looking to borrow USDC and are willing to pay me for the privilege. Supply and demand. Just like at your bank, but in that case they make sure you receive crumbs. Not at Aave.
AAVE is nothing like a bank. It's a purely margin investing. The borrowers are all speculators, putting down 130% collateral in crypto-currency, so they can bet 230% on crypto-currency.
When the next bitcoin crash comes, many of those borrowers are going to lose a lot of money. Some of the lenders may get hurt too, if the crash is fast enough and sudden enough. As more and more people borrow on margin, the bigger the snowball effect will be when the crash comes, and the faster the crash will be, as margin calls cause more selling, causing prices to drop faster, causing more margin calls.
There is no risk-free 10%.
But it's a variable rate, and it will fall if the market cools a bit. As I said, I'm averaging around 8-10% on my dollar deposits at Aave (USDC), and that average rate has been fairly consistent over the past 4-5 months or so. By the way, with Aave, it updates your Metamask with your principal plus interest in real time. So you can watch your balance grow every second, you don't even need to be on Aave's site for this. It's quite nice.
But these relatively high interest rates will likely fall over time, as more people deposit. Again, it's supply and demand. It won't fall to .1%, but perhaps in some years (months?) we'll see a 4-5% rate. Who knows. I only know as an early adopter I am enjoying double digit interest income on dollar deposits.
Perhaps one day the standard Bogleheads portfolio will be 60% stocks, 40% dollar deposits at Aave. Not even joking!
There's smart contract risk but with the volume and longevity Aave has had, that risk seems minimal but is certainly not zero. There's also the chance of WW3 and nuclear war that destroys the internet. That's not zero either but the traditional banking system would be destroyed, too. I understand the risks and sleep well at night with deposits at Aave. It's a great protocol and a wonderful financial innovation.
Frankly, the biggest risks are for new users making mistakes when using Defi. (I'll always remember making my first transfer and feeling my heart pump from the anxiety for several minutes wondering if all that Ether I just sent would show up in my wallet (it did). Then I remembered how it takes DAYS for money transfers to happen in traditional finance!)
It doesn't take much knowledge to make a purchase on Coinbase but moving up to Defi requires some knowledge and practice. Prahasaurus is correct to start small. Get experience with using a wallet. Read and watch as much as you can on the basics of Defi. Watch out for scammers in Discord forums.
There's a learning curve but once you've figured it out it's not bad at all. I expect this will become easier as the industry matures. There's so much exciting innovation happening in this space.