With the rise of the crypto market, there's a lot of active discussion around how to buy and sell digital assets. Two main ways to do this are Automated Market Makers (AMMs) and Centralized Exchanges (CEXs).
AMMs are part of the DeFi (decentralized finance) world, which means there is no middleman. CEXs are traditional platforms like Binance or Coinbase where the company controls the transactions.
Many people are drawn to the decentralized nature of AMMs. So in this blog, we want to explore liquidity pools, which are an important part of AMMs, and explain how they work.
Perhaps even more importantly, we’ll address a major question: does the risk of liquidity pools justify the rewards (and the potential for passive income)? Let’s take a look.
A liquidity pool is a collection of tokens locked in a smart contract. These tokens are used to enable trading on decentralized exchanges (DEXs). Instead of trading directly with another person, you trade with the pool. This system allows for faster and more efficient transactions.
You can think of liquidity pools as the backbone of AMMs. They let users trade cryptocurrencies without needing a buyer or seller to be available at the same time. By pooling resources, liquidity pools ensure that there's always tokens available for trading.
People who add their tokens to liquidity pools are called liquidity providers. In return for their contribution, they earn passive income in the form of trading fees and token incentives. The potential for passive income sounds great, but in this case it does come with some risks that you need to know about. To understand the risks, we first need to understand how liquidity pools work.
Liquidity pools work by using smart contracts to hold tokens from various users. These smart contracts are programmed to manage the pool automatically.
Let's look at an example to see how this works:
Imagine a liquidity pool for ETH and USDC. Users deposit ETH and USDC into the pool, creating a reserve of both tokens in the pool. When someone wants to trade ETH for USDC, they interact with the pool.
The smart contract uses a mathematical formula to determine the price of each token based on the pool's current reserves. This method ensures that the trade is fair and transparent for all parties involved.
To give you a better idea of how liquidity pools work, here's an even simpler example:
As you can see, it’s a highly efficient system because it doesn't rely on matching individual buyers and sellers. Instead, it uses the pooled resources to facilitate trades and trading volumes.
Liquidity mining is a way for users to earn rewards by adding their tokens to liquidity pools. The process is also sometimes referred to as yield farming, or used as part of a broader yield farming strategy. When you provide liquidity, you receive tokens representing your share in the pool. These tokens can be staked to earn additional rewards, such as more tokens or interest.
Origin Protocol has developed advanced strategies for liquidity mining through our Automated Market Operations (AMO). For example, with Origin Ether (OETH), users can provide liquidity and earn higher yields:
The AMO strategies are designed to optimize returns by using protocol-owned liquidity for higher capital efficeincy. This ensures that users get the best possible returns on their investments.
Yield farming through liquidity pools offers an attractive way to earn passive income. However, it's still essential to understand the risks involved in pooling tokens, such as changes in token prices and potential losses. We’ll get into this more in the final section of the article.
Liquidity pools offer a few benefits for users of DeFi platforms and DeFi protocols:
In other words? Liquidity pools are a crucial part of DeFi because they ensure there’s always enough liquidity for trading. They also make trading more accessible by letting users earn rewards.
Providing liquidity to a pool can be an excellent way to earn passive income. But it also comes with risk.
Before you decide to become a liquidity provider, consider a few important points:
Despite these risks, providing liquidity can be rewarding if done correctly.
Here are some tips to help you manage the risks:
By carefully managing these risks, you can take advantage of the benefits of liquidity pools and earn passive income. Origin Protocol’s OETH and other DeFi strategies offer advanced tools to help you optimize your returns while minimizing risks.
For example, by using OETH, you can earn higher yields on your stablecoins through automated market operations and algorithms that rebalance your assets across various high-yield DeFi platforms. In other words, it helps you get the best returns with reduced risk of impermanent loss and smart contract vulnerabilities.
Bottom line? Providing liquidity can be a great way to earn passive income, but it comes with risks like impermanent loss, smart contract vulnerabilities, and market fluctuations. To manage these risks, diversify your investments, research the tokens, and monitor your pools regularly. This way, you benefit from the best returns while reducing the risks involved.
How do liquidity pools work?
Liquidity pools work by collecting tokens in a large pot, where people can trade them easily. Smart contracts control these pools, keeping everything fair and automatic. This way, trades happen without needing traditional order books.
What platforms are best for liquidity provision?
Some of the best platforms for providing liquidity are Aave, Uniswap, and Curve. These platforms use smart contracts to keep your tokens safe and earn you money. But remember, there can still be smart contract risks in the form of bugs or errors, so always be careful.
What are liquidity pools in DeFi?
Liquidity pools in DeFi are pots of tokens where people can trade without needing a middleman. Instead of traditional order books, trades are managed by smart contracts. This allows trading pairs to be exchanged quickly and easily.
Morpho’s wOETH/WETH pool boasts deep liquidity for users, with more than ~$2M in available WETH liquidity supplied by the Re7 and Gauntlet Metamorpho vaults. For a limited time, WETH lenders can stack boosted MORPHO and OGN incentives on the pool.
By looping the pool, users can compound returns and leverage yield for maximum rewards. While straightforward, this strategy can be resource intensive. Users need to first deposit wOETH to the pool to borrow WETH, and use borrowed WETH to purchase more wOETH.
Formerly known as Oasis, Summer.fi automates this process with one-click solutions for ETH derivative looping and other popular DeFi strategies. Users can deposit wOETH via the platform’s Multiply portal to start earning yield.
Summer.fi prompts users to create Smart DeFi accounts using their Web3 wallets. You can create multiple accounts to manage specific strategies and positions on the protocol.
Beyond the Morpho pool, Summer.fi also features strategies for two Ajna wOETH pools – on Ethereum and Arbitrum.
Leverage the Morpho wOETH/WETH pool via Summer.fi
As a pure LST focused on delivering heightened yields and vast composability, Origin Ether is the ideal building block for executing rewarding leveraged staking strategies in DeFi. Integrations with innovative platforms like Summer.fi make accessing these strategies easier than ever, empowering anyone to earn compounded yields with relatively low risk and time investment.
Mint OETH: https://originprotocol.eth.limo/#/oeth/
Loop the wOETH Morpho pool with Summer.fi: https://summer.fi/ethereum/morphoblue/multiply/WOETH-ETH#setup
Origin Ether’s recent expansion to Arbitrum has carved out an array of new opportunities for holders. wOETH pools on Silo and Gyroscope are stacked with incentives, offering users several avenues to earn rewards from liquidity mining.
With Origin’s brand new, all-in-one dapp, bridging wOETH to Arbitrum has never been easier. Follow the steps below to get started.
The native bridge allows you to deposit ETH or wOETH to receive wOETH on Arbitrum in a single transaction.
You can purchase ETH via AMMs including Uniswap and on centralized exchanges.
OETH holders will need to visit the dapp’s swap page to wrap OETH as wOETH before bridging.
Swap between ETH, WETH, OETH and wOETH via the native swap page
Once you’ve acquired ETH or wOETH, head over to the native bridge to send funds to Arbitrum. The bridge incorporates Chainlink’s CCIP protocol to ensure best-in-class security for all transactions.
ETH holders can deposit ETH to the bridge and receive wOETH directly on Arbitrum.
Visit the native bridge to acquire wOETH on Arbitrum
Once the transaction has finalized, you should have wOETH in your Web3 wallet on Arbitrum.
Deploying wOETH to the co-incentivized Gyroscope and Silo Finance pools allows you to lock in significant returns with a low risk profile. Get involved now to take advantage of the limited-time rewards on offer.
Make sure to follow Origin on X and join the Discord server to be among the first to hear about new integrations.
Swap OETH for wOETH: https://app.originprotocol.com/#/oeth/
Bridge wOETH: https://app.originprotocol.com/#/oeth/bridge
A new wOETH/WETH market recently launched on Morpho, allowing users to borrow WETH against wOETH on the leading DeFi money market.
The Re7 Capital Metamorpho vault is supplying WETH liquidity to the pool, which could grow to $10M as utilization rates increase. Currently, the pool boasts ~$2.4m in available WETH liquidity. To celebrate the launch, Origin plans to distribute up to $45k in OGN rewards to WETH lenders over the next three months, starting 6 June 2024, at midnight UTC.
Thanks to a complementary proposal, Morpho is also distributing 6667 MORPHO to the pool over the next 30 days, further boosting incentives.
Users can take advantage of the lucrative yields on offer by looping wOETH: depositing wOETH to the pool, borrowing WETH, and using this WETH to purchase additional wOETH. By max looping wOETH, users are currently earning over 17% ROE.
Looping wOETH allows you to leverage up on APYs and compound returns from lending and pool incentives.
While this can be done manually, Contango makes this process far more seamless by incorporating flash loans. The dedicated looping platform allows you to leverage the pool automatically via a straightforward, user-friendly interface. Users can supply any of Contango’s supported assets to start earning.
Contango currently allows a maximum of 6.19x leverage for an ROE of >17%. Greater WETH liquidity from lenders would see borrowing costs decrease, significantly boosting potential ROE. Additionally, greater liquidity would also result in increased maximum leverage, due to a more favorable loan-to-value (LTV) ratio.
Visit the Contango Strategies dashboard and select wOETH to start looping. Deposit ETH, DAI, USDT, wOETH, or other supported ERC-20 assets to gain exposure to the Morpho wOETH market.
The Morpho market is Origin Ether’s first blue-chip money market integration, offering users an opportunity to earn outsized rewards by harnessing OETH.
As a pure LST with a focus on superior yields and maintaining a strong peg, OETH is an ideal building block for DeFi protocols and borrowers looking to execute leveraged staking strategies. This integration highlights OETH’s unique potential to unlock vast yield opportunities for users on Ethereum mainnet and beyond.
Make sure to follow us on X and join the Origin discord server to keep up to date with future integrations.
Check out the Morpho wOETH/WETH pool: app.morpho.org
Loop wOETH with Contango: app.contango.xyz
Mint OETH: originprotocol.eth.limo
Following multiple successful governance proposals, the merger is reaching its final – and most exciting – stage. OGV holders can now convert their tokens to OGN using the migration portal on Origin’s new, all-in-one dapp.
Existing holders have a one-year window to convert their holdings to OGN, which now serves as the sole governance and value accrual token for Origin’s yield ecosystem. Read on to learn how to migrate your holdings using the new platform.
Key Details:
First, navigate to the migration portal. Next, select “Connect Wallet” and sign in using the Web3 wallet that holds your OGV and veOGV. Make sure to set the network to Ethereum.
Once connected, the dapp will display your OGV balance, unclaimed OGV rewards, and current veOGV lockups on the left.
Confirm the balances and veOGV lockups you would like to convert to OGN using the associated check boxes. While users are encouraged to migrate all their holdings, the migration portal will remain open for a year to provide holders with maximum flexibility.
Once you’ve selected your balances, the dapp will display the total OGV to convert, as well as the resulting OGN you will receive. Select “Convert to OGN” to confirm.
The staking page also allows you to set the duration of your lockup, from 1 month up to a maximum of 1 year. As a reminder, xOGN holdings are determined by both the amount of OGN staked and the duration of your lockup time.
Users can also choose to stagger lockups on multiple time horizons by selecting specific balances to convert at once. For example, users can choose to stake certain balances for 1 year, and repeat the process to stake remaining balances for 6 months.
The page displays comprehensive metrics, including voting power and current staking vAPY, empowering you to make an informed decision.
After entering your desired staking details, you can proceed to convert your OGV to xOGN. The full conversion and new staked positions will be executed in a single transaction to minimize gas costs.
After completing the conversion, your OGN holdings should reflect in your wallet, along with xOGN representing your staked holdings. Visit the dapp staking portal to manage your staked positions.
Governing OUSD, OETH, and the new Automated Redemption Manager, xOGN holders accrue rewards from multiple streams across Origin’s product suite. Explore the ecosystem and wield your voting power to have your say on protocol mechanics, treasury allocations, and more.
With the merge now finalized, Origin is laser-focused on conquering its brand new roadmap, which features exciting multichain expansions and even greater utility.
Join the Origin discord and follow us on X to keep up to date with the latest releases.
Stablecoins like USDT, USDC, and others are popular cryptocurrencies designed to earn yield, similar to traditional savings accounts, bonds, and treasuries. These crypto assets are used throughout DeFi to earn interest on USD, as stablecoins like USDC track the value of the dollar. Stablecoins maintain a stable peg to the U.S. dollar, allowing users to earn interest on USD through crypto. This can make stablecoins an attractive option for those looking for everything from yield farming to a long-term investment strategy.
But like many financial services and investments, stablecoin yield strategies in DeFi have a variety of risks and annual percentage yields (APYs). In theory, this gives users the ability to match their risk preferences with a stablecoin yield strategy.
Below, we’ll highlight strategies both for investors with high and low risk appetites in the digital assets space.
If you want to jump straight to the answer: Origin Dollar (OUSD) provides high stablecoin yield for risk-averse crypto users. If you’re looking for no lock-ups, elevated yield, and passive rewards with minimal risk, then OUSD may be a good option to consider.
Here’s the full scoop on how to earn high yields on stablecoins.
When thinking of the safest stablecoins, crypto market natives usually point to either USDC, USDT, or USDS (formerly DAI). The ease of redemption of USDC for USD on Coinbase and monthly attestations that show that each USDC is backed gives assurance to holders.
USDS is a crypto-backed stablecoin with a mix of collateral backing. The majority of its backing is in stablecoins, while other cryptocurrencies can be used to mint DAI, too. DAI’s robust liquidation system and resilient smart contract security since its inception of 2017 has made it one of the most popular stablecoins with a long risk free track record.
Pairing these stablecoins with blue-chip DeFi protocols that have robust security measures like Morpho, Sky, and Curve, exposes investors to much lower risk than other options. These protocols are collateralized lending and market making platforms, with stablecoin interest rates from 1.8% to around 6% if only using USDC, DAI and USDT.
Holding stablecoins such as USDC is generally regarded as safe because of their asset backing with U.S treasuries or USD, as compared to algorithmic stablecoins like UST. Transparency in both stablecoin backing and yield generating protocols are key, as shown by the obfuscated handling of funds in Terra’s case.
DeFi protocols such as Morpho and Curve are coded to have most operations done onchain, with execution of governance proposals under a 1 day timelock. Any suspicious activity from these protocols will be immediately detected onchain.
Total value locked in these protocols and their liquidity pools acts not only as a sign of trust, but acts as a “bug bounty” for any hacker. If the protocol has been operating for a significant amount of time and value locked without any hacks, it is unlikely that such hacks are possible or they would have been done already.
Protocols without lock-ups are also seen as safer, as users can pull funds if any risks change.
As we know, earning higher APYs (Annual Percentage Yields) on stablecoins usually comes with added risks. However, some decentralized finance (DeFi) platforms like Morpho, Aave, Curve, and Sky (formerly MakerDAO) have proven to be safer options. Many crypto investors are turning to decentralized finance platforms, where stablecoins offer both stability and compelling yield.
These platforms have been around for years, surviving difficult market conditions, and are considered trustworthy. These DeFi protocols are designed to operate with full onchain transparency, which means anyone can see what's happening with the funds. They also have large amounts of total value locked (TVL), meaning a lot of people trust them with their money. Most importantly, they have clear rules for how they are managed through well-defined governance processes.
Even though these protocols are safer, it can still be confusing to figure out which stablecoins to use. With so many options available, it’s important to understand which ones offer both high yields and low risks.
Below, we’ll take a closer look at some of the safest stablecoins you can use on these platforms. These stablecoin yield strategies give you the opportunity to earn decent returns that stablecoins offer while minimizing the risk of losing your money.
As mentioned before, USDC’s transparency and ease of redemption makes it one of the safest stablecoins, while USDS’s robust liquidation system for its volatile crypto assets coupled with a mix of stablecoins have made it popular. Stablecoin interest rates for lending USDC and USDS on Aave range from 1.09% to 1.85% as of writing.
USDT is the oldest and largest stablecoin by market capitalization, backed by a mix of investments, loans, bonds, cash and cash equivalents, which are verified with quarterly reports. Though USDT may suffer from numerous rumors, it is a fact that it is the stablecoin with the longest history, going through more market tribulations than the others. Its popularity also makes it widely accepted for lending and borrowing. Direct redemption of USDT is harder relative to the other stablecoins, as there is a minimum transaction amount of $100,000 and other restrictions.
USDT lending rates on Aave are 1.80% as of writing.
OUSD is a yield-generating stablecoin collateralized by USDC, USDS, and USDT. OUSD automatically deploys stablecoins into blue-chip DeFi protocols such as Aave and strategies that have been vetted and analyzed by Origin’s expert engineering team. Daily interest is directly sent to OUSD holders, turning their wallet into a high-yield crypto savings account. By using the safest stablecoins and most secure DeFi protocols, OUSD is among the safest yield-generating stablecoins on the market.
OUSD’s 30-day trailing APY is currently 3.91% as of writing:
The highest stablecoin yields in DeFi usually involve algorithmic stablecoins, options selling, or uncollateralized lending to earn yield. However, these yield strategies hold additional risk and are generally considered mid to high risk investments. Below are some examples of different stablecoin yields.
Uncollateralized crypto lending platforms allow users to choose institutions they are willing to lend to, usually at a much higher rate than collateralized lenders due to the risk lenders take. Due diligence on the institutions lent to is strongly encouraged, as bankruptcies of the firms may result in losses for lenders, as seen in the Celsius and Voyager cases.
There are DeFi protocols emerging that offer uncollateralized lending, but these apps are regarded as higher-risk than collateralized lending opportunities. Given the yield is only boosted by a few percentage points, most users opt to lend money to collateralized borrowers.
Algorithmic stablecoins, infamously popularized by Terra (LUNA), are stablecoins that derive value from being backed by their native crypto asset. In Terra’s case, each UST was redeemable for $1 worth of LUNA.
Offering 20% APY on its native lending app, many crypto investors were lured in by high interest rates and the idea of earning passive income. Due to massive selling pressure and panic, a lack of demand and liquidity on LUNA led to a bank run on UST, causing a death spiral on both UST and the LUNA market cap.
The most similar alternative to UST now is USDD, which is backed by a mix of TRX, BTC and USDC, currently offering yields of 10-20%. Since it is collateralized with USDC and BTC, it may be seen as safer than UST. The key risk here is that the minting of USDD and reserve management is controlled by a centralized team, similar to how UST’s treasury with BTC was controlled by the Terra team.
Known as the covered put option strategy, USD yields can be generated by selling put options on crypto with stablecoins as collateral. Buyers pay sellers a premium for the put option, and if the price of the underlying crypto does not go below a certain price, the seller earns the premium with no losses.
For example, if the current price of ETH is $1600, and someone sells put options with a strike price of $1375 for $5. If ETH price stays above $1375, they profit $5. However, if it goes to $1000, they suffer a total loss of $370.
Ribbon Finance’s platform offers this strategy to users.
With vastly different risks and attributes between each strategy, it's hard to broadly say stablecoin staking is worth the risk as a crypto investment. The highest yielding stablecoins may come with risks that are not understood, as seen with UST and Celsius.
Variable APYs and market conditions also require users to continuously monitor their strategies, which they may not have the time for. If users understand the risks they are taking and match their strategies according to their risk appetite, then stablecoin staking will be worth the risk and can often provide higher returns than a traditional bank.
If users are looking for automated low-risk stablecoin yield strategies with no lock-ups, elevated yield, and passive rewards, then OUSD may be a good option to consider. By having compounding interest credited directly into users’ crypto wallets without transaction fees, OUSD gives users a convenient source of passive income.
OUSD can be purchased through a DEX aggregator, or crypto exchanges such as Kucoin and Gate.
Curve Finance is a decentralized exchange that focuses on trading similarly priced assets like stablecoins with low fees and minimal slippage. Created by Michael Egorov, it’s a key part of the DeFi ecosystem, offering users a transparent, self-custodial alternative to traditional financial systems.
Unlike centralized platforms, Curve operates as a decentralized autonomous organization (DAO), meaning its governance is community-driven through voting power tied to vote-escrowed CRV tokens. This gives users a say in the platform's direction and decisions.
Curve doesn’t just handle trades—it also supports lending and borrowing by integrating with protocols like Yearn Finance, amplifying earning opportunities for users with deposited funds. Its focus on both volatile assets and stablecoins makes it versatile, appealing to both risk-averse and high-yield seekers.
In short, Curve is a powerhouse in the DeFi ecosystem, offering a fair, accessible, and efficient alternative to traditional finance.
Decentralized exchanges like Curve use automated market makers (AMMs) to replace order book trading. Instead of having an order book, AMMs uses a mathematical algorithm to quote asset prices for buyers and sellers. But before buyers or sellers are able to trade on the exchange, external users must deploy capital into liquidity pools for the AMM to utilize. External users that provide capital for AMMs are addressed as liquidity providers.
Liquidity providers for Curve pools are able to earn yield via trading fees from buyers and sellers, and also earn Curve’s native token, CRV, if the pool is incentivized. CRV’s is Curve’s governance token, which allows CRV stakers to earn trading fees generated by the protocol, earn more CRV tokens, and vote on governance proposals like raising trading fees.
Launched in January 2020, Curve has been wildly successful and popular for stablecoin trading, generating over $250 billion in cumulative trading volume and over $100M in trading fees since its launch.
The risks of using Curve change depending on whether the user is a trader or liquidity provider. Traders bear little to no risk, as they only briefly interact with the protocol to exchange tokens. Liquidity providers deposit their capital for a longer period of time, and may be concerned with potential smart contract bugs that would allow a hacker to drain their capital.
Similar to Aave, Curve has been operating since January 2020 without any major exploits or hacks. It had over $24 billion dollars of total value locked in the protocol at its peak, acting as a huge bounty for any hacker to exploit the protocol if it were possible.
Liquidity providers on Curve can earn yield varying from 0% to over 200%, as yields depend on trading activity and token incentives. The higher yields usually come from providing liquidity for small market cap coins, with increased directional risks for liquidity providers.
Interest earned for providing liquidity on safe stablecoins like USDC, USDT, and DAI usually hovers around 2% to 5% during average market conditions.
OUSD has integrated a list of curated DeFi protocols to earn yield for its users, Curve being one of them. By having a variety of DeFi protocols that OUSD can deploy stablecoins to, OUSD has the ability to deploy capital to the strategies that earn the highest yields at that time. By doing so, OUSD has been yielding approximately 22% over the trailing 14-days (data as of January 2025).
Since yields are dynamic, OUSD can earn more yield than lending on Curve, Aave, or Compound alone. It’s also ideal for holders dealing with less capital, as OUSD rewards accrue directly to your wallet daily. This means you will not have to pay prohibitive gas fees to harvest your rewards, and OUSD remains fully liquid while earning interest.
OUSD can be bought directly on the Origin dapp, through Curve itself, or on centralized exchanges such as Kucoin or Gate. If you purchase through the OUSD app, you’ll be minting fresh OUSD with DAI, USDT, or USDC, whereas buying on a secondary market can be done through stablecoins, USD, or crypto.
Most of the differences between Curve’s biggest competitors stem from their pricing algorithms, and are known as:
Curve is considered as one of the blue-chips among DeFi platforms due to its lack of exploits, age, and popularity. Given its smart contract performance in an adversarial environment where code is law, we believe that Curve is one of the safest protocols in crypto.
What is an inverted yield curve and why does it matter to DeFi investors?
An inverted yield curve occurs when short term interest rates exceed long term rates, such as the 30-year treasury and the 10-year treasury. This inversion can signal economic downturns, leading bond investors to seek safer, more liquid assets, sometimes pushing them towards DeFi platforms for better yields and stability.
How does the yield curve reflect the stability of DeFi investments compared to traditional treasury bonds?
The yield curve reflects market expectations for future interest rates and economic conditions. While traditional investments like treasury bonds offer predictable returns, DeFi investments on platforms like Curve Finance can offer higher, albeit more volatile, yields. Understanding the yield curve helps investors balance their portfolios between stable assets and high-yield DeFi opportunities.
Bitcoin and other cryptocurrencies were created by developers who thought central banks and governments had too much control over money. During the Great Financial Crisis, banks took big risks to make more money, and when they failed, central banks bailed them out. This showed how much power central banks had.
Bitcoin changed this by using blockchain technology, which is a system of rules enforced by code. No one could control or change Bitcoin. Anyone with an internet connection could use it as money and to save value. This was very important for people in countries with very high inflation, like Venezuela and Argentina. They could use Bitcoin instead of their bank accounts, which were quickly losing value.
Then came the Ethereum blockchain, which used the same technology as Bitcoin but allowed for more complex uses. It introduced smart contracts, which are like automatic agreements that don't need a middleman. This led to the creation of decentralized finance (DeFi), where people could do more complex financial transactions without needing a bank. This included things like DeFi lending protocols, where people could borrow and lend money through code.
The Aave protocol is a DeFi application that acts as a lending and borrowing platform on Ethereum. Users who deposit tokens like ETH or USDC can earn interest from borrowers.
For example, a DeFi market borrower that deposits ETH would like to get a loan in USDC. Aave only allows ETH collateral to borrow up to 82.5% of its value. If the borrower deposits 100 ETH worth $3,500 each, they can borrow funds up to $288,750 in the form of a crypto loan.
The smart contract will automatically sell the ETH collateral if their USDC loan value reaches 85% of the collateral value, preventing potential insolvencies.
For example, if ETH drops to $2,975, Aave will sell enough ETH to ensure USDC lenders get paid back the full $111,375 plus interest. So interests are relatively well-aligned between lenders and borrowers, arguably even more so than with traditional lending.
Aave also has some unique features like flash loans. Flash loans are quick loans that you don’t need to put up any collateral for, but you have to pay them back in the same transaction. These loans let you do advanced functions like arbitrage (buying and selling for profit), swapping collateral, and liquidation. These options aren’t available in regular banking.
Another important feature is Aave’s liquidity pools. Users can deposit their crypto into these pools. This way, there is always enough money available for borrowers, and lenders can earn extra income from their deposits. This system makes sure there is enough money to lend out and keeps everything running smoothly and safely.
Aave also works with other DeFi platforms and layer 2 solutions to be more useful and efficient. For example, Aave can be used with Polygon, which helps lower costs and makes it easier for more people to use. This compatibility means users can take advantage of many DeFi services at once, improving their returns and investment strategies.
In other words: Aave is a very useful and flexible platform in DeFi. Its flash loans give smart users more chances to make money with advanced moves. The liquidity pools make sure there is always enough money to lend, keeping things safe and stable. And Aave works well with other DeFi platforms and layer 2 solutions like Polygon, which helps lower costs and makes it easier for more people to use.
All digital assets and DeFi lending platforms carry risk. The main risks of using Aave are potential smart contract bugs and potential inability to liquidate collateral to ensure loans stay overcollateralized.
In regards to that, Aave has been running successfully without exploits since deploying in January 2020, attracting more than $18 billion dollars worth of value at its peak. This value essentially acts as a live bounty or safety module for any hacker to exploit its smart contracts if possible. The fact that it has not been hacked simply means the code works as intended.
To ensure the protocol is able to liquidate collateral before loans become bad debt, Aave imposes strict parameters on margin requirements.
Aave gives interest rates on stablecoins from about 6.26% to 7.3%, making it a strong choice for earning money in DeFi. During the last big market rise, these rates went over 10% because many people wanted to borrow more as prices were going up. This happened because lots of new investors and traders wanted to take on leverage.
Aave’s interest rates change based on how many people are borrowing and lending. If more people borrow, the rates go up to attract more lenders. This helps keep a good balance between borrowing and lending.
You can make even more yield with Aave by using Origin Dollar (OUSD). OUSD helps get the best returns by moving stablecoins to different high-yield strategies automatically. This means you don’t have to manage everything yourself, and you can earn more money easily.
In short, Aave’s flexible interest rates, along with the boost from OUSD, make it a great option for anyone looking to earn good returns on their stablecoins.
OUSD is a yield-bearing stablecoin, backed 1:1 by other stablecoins USDT, USDC and DAI. OUSD deploys these stablecoins to a list of curated DeFi protocols to earn yield for its users, one of them being Aave. Because OUSD utilizes a number of DeFi protocols for other activities such as market making or peer-to-peer lending, OUSD is able to automatically rebalance holdings between strategies to earn the highest yields. Currently, OUSD has been yielding approximately 7-10% for its users.
The other protocols OUSD use besides Aave are
Yield from OUSD is directly sent into the users’ wallets, similarly to how a savings account works. All strategies employed by OUSD are market neutral, meaning that there are no speculative positions that may result in large drawdowns. Since OUSD is a smart contract powered application, the protocol is 100% transparent and auditable 24/7 on the blockchain.
In contrast to the uncertainties regarding centralized exchanges and lending platforms, OUSD users can relax knowing that OUSD’s reserves can always be verified onchain.
OUSD is currently the number one yield generating stablecoin in DeFi, helping beginners and experts alike make the best risk-adjusted yields on their stablecoins.
OUSD can be bought directly through the Origin dapp, through decentralized exchanges such as Uniswap, or centralized exchanges such as Kucoin or Gate. If users do not have a crypto wallet, they are required to set one up to hold OUSD. Users who intend to store more than $1000 worth of tokens are generally recommended to use a hardware wallet like a Ledger.
Aave is a standout lending and borrowing protocol, but it still faces competition from several other platforms, each offering unique features and capabilities.
It’s worth taking some time to understand these competitors, as it will help to highlight Aave's position and the alternatives available to users in the DeFi ecosystem.
Compound Finance is one of the most notable competitors to Aave. However, Compound has stricter parameters for borrowing, which can make it a more conservative choice for users seeking stability.
While Aave supports a wide range of assets, Compound's asset support is more limited, which might restrict users looking for a broader selection of tokens to lend or borrow. Despite these limitations, Compound's strict borrowing parameters can be advantageous for those looking for a more secure environment with well-defined borrowing limits.
Another competitor is Morpho, a peer-to-peer lending protocol integrated with OUSD. Unlike Aave, which uses a peer-to-pool model where users deposit assets into a collective pool, Morpho matches lenders directly with borrowers. This peer-to-peer approach can potentially offer more personalized lending terms and improved efficiency.
By directly connecting lenders and borrowers, Morpho aims to optimize the lending process and enhance the user experience. This direct matching can reduce the spread between lending and borrowing rates, potentially making it more attractive for both parties involved.
Notional Finance takes a different approach by focusing on fixed-term lending. Unlike Aave and Compound, which allow lenders to withdraw their assets at will unless the borrower utilization rate is excessively high, Notional requires lenders to lock in their deposits for a specified period.
This fixed-term model can provide more predictable returns for lenders, as they know exactly how long their funds will be locked and what interest they will earn.
However, it also requires a commitment from lenders, which can be a drawback for those seeking liquidity and flexibility. Borrowers on Notional benefit from fixed interest rates, which can be an advantage in volatile markets where interest rates on other platforms might fluctuate.
In sum, these competitors each bring unique features to the DeFi lending space:
Whether it’s Compound’s strict borrowing parameters, Morpho’s peer-to-peer matching, or Notional’s fixed-term commitments, users have multiple options to consider when choosing a DeFi lending platform. These alternatives allow users to find a platform that best fits their specific requirements and risk tolerance.
Is using Aave safe?
As addressed before, Aave has some risks in regards to smart contracts and collateral liquidity. However, given its robust performance in the most volatile market in the world, we believe Aave token is among the safest protocols to use on Ethereum.
What is a liquidity pool and how does it work on Aave?
A liquidity pool on Aave is a smart contract where users deposit collateral like ETH or USDC. These deposits create a pool of crypto assets that borrowers can access. Liquidity providers earn interest from the borrowers' fees, while the smart contract ensures that the pool remains overcollateralized to prevent defaults.
How do flash loans work on Aave?
Flash loans on Aave allow users to borrow assets without depositing collateral, provided the borrowed amount is returned within the same transaction. This feature is useful for arbitrage opportunities, refinancing positions, or exploiting temporary price discrepancies in the market. Flash loans are a unique aspect of DeFi that traditional finance does not offer.
What are the risks of borrowing assets on Aave?
Borrowing assets on Aave involves risks such as smart contract bugs and potential liquidity issues. Users must deposit collateral to secure their loans, and if the value of their collateral drops, it may be liquidated to maintain the loan's overcollateralized status. This system helps protect both lenders and borrowers, but it's important to be aware of market volatility.
Stablecoins have risen to prominence due to their unique utility and unrivaled versatility among digital assets. The sector now boasts a market capitalization in excess of $125B. Understanding the dynamics of stablecoins allows traders to harness blockchain to its full potential, rather than rely solely on a centralized financial institution.
Stablecoins denote digital assets in the cryptocurrency market that are pegged to more stable assets. While stablecoins can represent a variety of assets such as precious metals or ether, they are typically used to represent fiat currency.
Most fiat-backed stablecoins are pegged to the US dollar, due to its positioning as the global reserve currency. Tether’s USDT, Circle’s USD Coin (USDC), and MakerDAO’s DAI comprise the three most popular stablecoins at present. These are all pegged to USD through various mechanisms, making them fiat-backed stablecoins, but crypto-backed stablecoins also exist.
USDT and USDC are centralized, fiat-collateralized stablecoins. This means that in theory, all USDC and USDT should be 1:1 redeemable for physical US dollars. Tether and Circle (the two major stablecoin issuers) hold reserves of cash or cash equivalents in order to ensure that their stablecoin crypto assets are fully backed.
While this structure works well, its centralized nature is not ideal in a decentralized space.
Thus, competitors such as DAI have emerged to offer decentralized stablecoin alternatives. Rather than being controlled by a single entity, DAI is governed by members of MakerDAO. MKR holders propose and vote on protocol decisions. DAI is fully collateralized by a basket of digital assets including USDC and ETH.
Some projects have gone a step further by developing algorithmic stablecoins. These stables aren’t backed by any assets. Rather, they maintain their dollar peg at a smart contract level by restricting and expanding supply.
Algorithmic stablecoins are highly experimental and should be considered with extreme caution. Once the peg is lost, it is very difficult for an algo stable to regain parity to the asset it represents. The collapse of Terra Luna and UST is a searing example of the dangers of algorithmic stablecoins. The protocol’s $40B market cap cratered to zero shortly after losing its peg.
Stablecoins offer vastly different utility than other cryptocurrencies. Their unique use cases have given rise to thriving sectors of blockchain technology.
Speculative digital currencies, such as Bitcoin and Ethereum, are highly volatile. In contrast, stablecoins maintain their value as they’re pegged to underlying assets such as cash.
Stablecoins thus provide investors with a safe place to store their capital. This is because the price volatility of the wider market does not affect them.
Stablecoins are also used to store value in times of economic uncertainty. Citizens of countries facing hyperinflation increasingly use stablecoins to protect their wealth.
Stablecoins harness the borderless nature of crypto to enable seamless international transfers. Using stablecoins to transact funds is far quicker and more affordable than conducting cross-border transactions via the traditional banking system.
Even in 2023, a traditional wire transfer can take up to a week to finalize. The same funds can be transferred anywhere in the world in a matter of minutes by using a stablecoin. Furthermore, a stablecoin transaction costs just a few dollars in gas, generally far less than the fees incurred in traditional banking.
These advantages provide a significant boost to the multibillion dollar remittance market. Over $600B is transacted annually in the form of remittances, as emigrants send money home to support their loved ones. The rapid finality and reduced fees offered by stablecoins make it far easier for people to send funds home. Users enjoy increased cost savings without having to deal with bank accounts.
Estimates suggest that more than 1.4 billion people remain unbanked globally. These individuals are restricted to using cash, thus excluding them from the wider economy and many financial services.
Given that smartphones are now ubiquitous, unbanked people can use stablecoins with only an internet connection. Fiat onramps are growing increasingly diverse, making it simpler than ever to deposit funds and trade them for stablecoins.
In addition to providing avenues for people to store and move their money seamlessly, stablecoins offer diverse investment opportunities.
Dollar-pegged stablecoins form the lifeblood of decentralized finance (DeFi). There are many ways that stables can be used in DeFi to earn passive income.
Users can stake stablecoins to a number of protocols in order to earn interest on their holdings. Additionally, holders can provide liquidity to decentralized exchanges in return for a share of fees. DeFi also boasts a thriving lending market for stablecoin holders. Holders can either borrow assets using their stables as collateral, or lend out their holdings to earn interest.
Origin Dollar (OUSD) offers a cutting edge platform for investors to put their stablecoins to work. OUSD is fully collateralized by leading stablecoins – USDT, USDC, and DAI. Users can deposit any of these reserve assets to mint OUSD.
Underlying reserve assets are allocated to various strategies in order to earn yield. This yield is disbursed directly to users’ wallets in proportion to their OUSD holdings with no staking required. Minted OUSD can be transacted freely like any other token. As a result, users don’t need to lock up their funds or manually stake in order to enjoy passive rewards.
In contrast to centralized stablecoins like USDT and USDC, users are empowered to vote on OUSD’s activity and treasury allocations. Staking Origin Token (OGN) grants users voting and economic power in the form of xOGN. xOGN holders vote not only on matters pertaining to Origin Dollar, but all of Origin's product suite.
Crucially, OUSD offers best-in-class security. The protocol has been rigorously audited by firms including OpenZeppelin and Certora. OUSD is only one of six digital assets to earn a AAA rating from industry leading coverage firm, InsurAce.
Origin Dollar’s groundbreaking mechanics illustrate the vast power of stablecoins. By promoting transparency and autonomy, users are empowered to take control of their funds. With innovative design, stablecoins like OUSD broaden opportunities and inclusion while retaining security and seamless usability.
As with any form of investing, there are no guarantees on return. However, stablecoins offer diverse opportunities that extend beyond crypto. Additionally, their price stability ensures that value is not impacted by crypto’s high volatility.
When it comes to cross-border transacting, stablecoins offer a formidable alternative to central banking.
That being said, it’s vital to do your own research before investing in any stablecoin. At present, algorithmic, uncollateralized stablecoins come with outsized risk. Conversely, fiat-collateralized stablecoins remain robust, despite their opaque nature.
Using stablecoins in DeFi can open the door to a world of financial opportunity. However, the space remains fraught with protocols that do not have users’ best interests at heart. Make sure to use a trusted platform such as OUSD when entering the realm of DeFi.
