Staking is the method of committing tokens to a blockchain and receiving coin rewards in return. In many ways, it is quite similar to putting money in the bank and earning interest. Unlike the banks, where the interest rate tends to be minimal, the interest rate of the staked tokens can be compounded daily.
Aave protocol’s governance token, AAVE, gained significant popularity from its staking potential during 2020. Its value at launch was $0.00162 and has increased to today's worth of nearly $105. This guide will describe how to stake AAVE, the risks involved, and the best places to stake Aave it to yield the highest rewards.
AAVE is a high-market cap coin that can be staked on the native Aave blockchain application. Staking AAVE works a bit differently from staking other types of cryptocurrencies. The other common method for staking AAVE is using a supported crypto exchange such as Binance which has multiple ways to earn a yield on Aave and other top staking coins.
Staking is the process of pledging cryptocurrencies to the blockchain where they are used to maintain liquidity, validate transactions, provide voting power, and serve as collateral. On the surface, staking AAVE possess similar characteristics where investors stake their tokens and earn coin rewards over time.
However, the difference in AAVE staking is that the protocol sends the staked tokens to a Safety Module Protocol (SMP) which acts as a risk mitigation tool. In the unlikely event of any financial shortfalls, staked tokens are to be used to cover the deficit and maintain the liquidity of the protocol. Essentially, users are rewarded for ensuring the security of the Aave protocol. Currently, over $418 million worth of funds are stored in the SMP, and the total emission per day is 1,100 AAVE.
Aave distributes 550 tokens per day, and they are split among the staker's. Investors who’ve staked their AAVE tokens can also earn rewards in the form of a percentage of the transaction fees. The current staking market capitalization of the AAVE is $271.8 million, and the staking ratio is 17.86%.
Market experts have considered staking AAVE a low-risk method to earn passive income. The current staking reward is 5.89% APY with the adjusted reward being 4.78% APY. AAVE works with its own decentralized application, making it simple to invest in and earn rewards.
Investors often have a question – how much can I earn from staking AAVE. The answer to this question depends on various factors:
- The number of tokens that the user has staked: The higher number of staked tokens translates to higher rewards.
- The Staking Duration: Investors must stake their AAVE for at least ten days.
- The total number of tokens in the safety module. There is approximately $481.76 million worth of tokens inside the Safety Module at the time of writing.
Being an Ethereum-based platform, AAVE does suffer from high gas fees. Users can deal with this by conducting large transactions. Staking a large amount of AAVE will ensure that the gas fee doesn’t put a dent in the staking rewards. Consider it similar to buying a lot of shares in one in order to reduce the high brokerage fees.
At the time of writing, these are the best places to stake AAVE to earn passive rewards:
- Binance (overall best AAVE staking platform)
- Official AAVE dApp (reliable and safe app)
1. Binance - Best For Ease of Use
Binance is the biggest cryptocurrency exchange on the planet. It has nearly 100 million users and hosts over 350 cryptocurrencies. It is suitable for both novice and experienced investors who want to engage with the cryptocurrency market in an economical manner. Launched in 2017 in Hong Kong, Binance is a popular exchange to invest in Bitcoin, Ethereum Litecoin, Dogecoin and its own native token, the BNB. The company had to change locations in 2018, owing to China’s strict policies against cryptocurrency exchanges.
The primary aspect that sets Binance apart from the rest is its crypto-to-crypto trading – swapping cryptos. Therefore, the platform is suitable for experienced crypto investors who are privy to the intricacies of the crypto market.
When it comes to staking and earning interest on crypto in savings accounts, Binance is an industry leader. While platforms such as Crypto.com and Coinbase are still finding their footing in the staking ecosystem, Binance is one of the best crypto staking exchanges with more than 100 staking coins. Binance is the only exchange that supports AAVE staking at the time of writing.
There are three ways for investors to obtain passive rewards with Binance:
- Locked Staking. This is the standard place to deposit Proof-of-stake coins for a defined period of time. Although, Aave is not supported.
- DeFi Staking. This feature lets investors stake AAVE for a locked period of 10 days. However, only one AAVE token can be staked at any one time. The Annualised Interest Rate is currently 25.18%.
- Flexible Savings. Users can hold their AAVE tokens in a Flexible Savings wallet for any length of time and earn a 1% Annual percentage Yield (APY).
DeFi staking is a high-risk and high-return type of investment. Binance implements additional vetting measures to ensure that the cryptocurrencies listed in DeFi staking are worth listing. In January of 2022, AAVE was introduced to the Binance platform. With DeFi staking, users can earn higher Annual Percentage Yields (APY). However, Binance takes no responsibility for any security issues related to the on-chain smart contract.
Investors can earn rewards for staking particular cryptocurrencies for a finite period of time. In the case of AAVE, the staking period is ten days. Users can stake only one AAVE in DeFi Staking and earn an annualized interest rate of 25.18%. If investors choose to stake their tokens for 30 days of holding, they can stake up to 100 AAVE and earn a standard annualized interest rate of 6.49%. The minimum DeFi staking limit is 0.01 AAVE.
The only downside with staking AAVE on Binance is that it is not supported on the sister website Binance.US. There are only 4 cryptocurrencies available for individuals in the USA to stake which does not include Aave. Read our full review on Binance, its features and fees.
2. Official AAVE dApp - Reliable and Safe App
The other way for staking AAVE is the official AAVE dApp. It is a simple to use platform that enables investors to stake AAVE and more than 30 other Ethereum-based cryptocurrencies, including Yearn, Finance, ZRX, xSUSHI, ETHEREUM, BAT, BAL, TETHER, AAVE, USDP, USDC, and others, to name a few. For a full guide on how to stake AAVA using the official app, click here.
Investors that are bullish about AAVE and are willing to take a risk for higher rewards can use their AAVE to contribute to the liquidity pools on a DEX. The earnings can vary depending on the various aspects of DEX, such as slippage, demand for the pool, and gas fees. Additionally, providing liquidity takes more time, more knowledge, and effort than staking. That being said, investors can only invest in liquidity pools via cryptocurrency pairs such as AAVE-ETH.
Even though staking is a safer way to earn using cryptocurrency, it is important to remember that the cryptocurrency market is volatile. There are risks involved with staking AAVE which include:
- Slashing rewards. Investors stake their AAVE with full knowledge that their staked assets will be stored in the Safety Module Protocol. In the event of any loss, the protocol can cut 30% rewards to maintain the liquidity. While it has not happened yet, it is not safe to assume that it won’t happen in the future. That being said, 30% is the maximum reduction investors might have to bear.
- Illiquidity. Staking or depositing AAVE tokens for liquidity locks the asset for the set period. As the assets are locked, investors won’t be able to react to sudden market changes that are all too common in the cryptocurrency ecosystem.
- Smart contract bugs. Smart contracts are not automatically created. They’re human-programmed modules and, thus, are vulnerable to human errors. While the reviews for AAVE have been nothing short of glaring, it is important for the investors not to put too much stake in them.
- Staking platform vulnerabilities. Depositing AAVE through a liquidity pool on an exchange might leave it vulnerable to different security breaches. However, investors shouldn’t worry too much about it as exchanges such as Binance have taken additional measures to consolidate the platform’s security.
To sum up, staking AAVE has similar risks to any other cryptocurrency. Even though the 30% slash might feel pronounced at the time of writing, it is important to remember that it is in case of emergency. The conditions aren’t quite as far gone that they would require Security Module funds to maintain the deficit. Thus, currently, staking AAVE is one of the safer options to stake cryptocurrency.
Pros of staking AAVE
- Staking AAVE is a simple procedure and doesn’t take a lot of time. Even novices will have an easier time engaging with the platform and staking their AAVE tokens
- AAVE protocol has become a mainstay in many blockchains. By staking, users are basically contributing to the technological well-being of the platform, making room for better rewards in future
- The crypto community is particularly bullish about Aave
- AAVE developers have gone against the grain and have shown transparency about their platform. In their whitepaper, they have used simple words to mention the risk associated with investing or staking AAVE
Most cryptocurrencies can be staked using a reputable and trusted crypto exchange where the AAVA tokens are locked in wallets and earn rewards for the holder after a period. Using a centralized crypto exchange is often the best way to stake AAVE due to its ease of use and convenience. The other option is to use the official AAVE dApp, where the staked cryptocurrencies are stored as a contingency.
To stake AAVE to earn rewards, follow these simple steps:
- Buy AAVE from a crypto exchange. The first requirement to stake AAVE is to have the cryptocurrency in the wallet. If the investor is yet to buy AAVE, the first step is to understand how to buy crypto. The recommended method is to use a global exchange such as Binance, Coinbase or another staking platform that lists AAVE.
- Transfer AAVE to a wallet. In order to stake AAVE, investors must connect their crypto wallets to the official platform. But first, they must transfer their bought AAVE tokens from the exchanges to the wallet. Ledger Wallet, Atomic Wallet, and even Binance Wallet are good options in this regard.
- Go to the official AAVE dapp and connect the wallet. Users must go to the official Aave decentralized application to start the staking process.
- Choose the staking option. The option to stake AAVE is available on the top of the menu bar, beside the Markets.
- Connect the wallet. At the center of the screen lies the option to connect the wallet. If the investor is accessing the app without logging in, they will receive the message that the platform couldn’t detect the wallet. Pressing the Connect Wallet button will unveil the options that Aave support. They include Ledger, Mew Coinbase, Authereum, Fortmatic and more.
- Enter the amount of AAVE to stake. Investors must then enter the amount they want to stake. If the user wishes to, they can stake the maximum permissible number of AAVE – 100. It is advised that the investor confirms the amount of AAVE staked beforehand. Confirming the stake will lock it up for ten days. The platform requires two transactions for the token staking to be a success.
If the investor decides that they have earned enough and want to un-stake their tokens, they must first activate the cooldown after ten days. The default cooldown period for AAVE is ten days. Once it is over, the platform gives the user a two-day window to remove their tokens. Losing that 2-day window would start the cooldown period once again.
Investors can stake their AAVE via the official dApp or through Binance DeFi staking. Staking on the dApp allows users to directly interact with the Aave ecosystem and earn up to a 6% Annual Percentage Yield.
Binance DeFi staking, on the other hand, only recently introduced AAVE staking and is the only crypto exchange to do so. Investors can stake their AAVE either through for high yield returns or flexible returns.
Staking through high yield returns allows investors to earn up to 6.49% APY with a locking period of 30 days. Investors who seek safer options can choose guaranteed, flexible returns. It allows users to hold their tokens for any length of duration and nets with 1.00% APY.
While there is a certain level of risk for users staking AAVE, the protocol has a history of staying secure and liquid. Experts have said that the potential returns outweigh the risks of staking AAVE. Additionally, Aave’s APY is equal to some of the top staking coins in the market.
Aave is a borrowing and lending protocol that allows depositors to add liquidity to the liquidity pool. Borrowers can obtain loans from the same pool in an overcollateralized or under collateralized fashion. In simple terms, borrowers can borrow tokens at a variable or fixed interest rate.
In 2017, the Aave protocol was built on the Ethereum blockchain but has since expanded on other chains, including Polygon, Arbitrum, Avalanche, Fantom, and Harmony to name a few. Initially, the native governance token of the protocol was LEND. It was converted into AAVE following the AAVE improvement proposal.
At the time of writing, AAVE is the 42nd largest cryptocurrency in the market with a value of $105 and a trading volume of $142.7 million. The current market capitalization is approximately $1.5 billion with a circulating supply is $13.8 million.
AAVE staking has generated a lot of buzz in the market because of the penetration of AAVE protocol across multiple blockchains. That being said, the slashing disadvantage has raised some eyebrows within the crypto ecosystem. However, since the protocol has a history of being secure, investors are recommended to not worry too much about their staked tokens being slashed any time soon.
As for where to stake Aave, this is currently only possible either through the official AAVE dApp or Binance DeFi staking. While the official platform is recommended for novices, investors would find Binance DeFi staking to be offering better yields and more flexible with its other products to earn crypto.
Kevin started in the cryptocurrency space in 2016 and began investing in Bitcoin before exclusively trading digital currencies on various brokers, exchanges and trading platforms. In 2019, he started HedgewithCrypto to publish informative guides about Bitcoin and share his experiences with using a variety of crypto exchanges around the world.