6% annualized? Aave App enters retail finance

Written by: KarenZ, Foresight News

Between the low-interest traditional financial market and the high-threshold cryptocurrency field, users have always lacked a “low-threshold, high-yield, and highly convenient” intermediary product.

Web3's largest lending protocol Aave launched its mobile application Aave App on November 17, attempting to package the most mature on-chain lending market into an “internet bank” format to fit into everyone's mobile phone, entering the consumer finance arena.

But the key question is, is this a bridge that pushes DeFi towards mass adoption, or a risk transfer game under the temptation of high yields?

Aave App positioning: turning “on-chain money market” into a “savings application”

The ambition of the Aave App is to allow ordinary users to easily enjoy DeFi-level returns without needing to understand blockchain. This mobile product, focused on “high-yield savings,” is based on the Aave lending protocol, yet it breaks down the participation barriers for users inside and outside the industry with an extremely simplified operating experience.

The Aave App's deposit methods cater to both internal and external users, supporting connections to over 12,000 banks and debit cards, as well as deposits and withdrawals of various mainstream stablecoins (including GHO, USDT, and USDC). Users can deposit and withdraw at any time, with no minimum deposit requirement, no periodic subscription fees, no asset management fees, and no deposit fees. In addition, Aave states that “users can earn a base yield of 6% annually by depositing funds, while enjoying account balance protection of up to $1 million.”

In short, the Aave App is not a bank, but it utilizes a bank-level user experience familiar to the public to create a “Savings +” product with a real-time floating yield of 6% on-chain that is accessible to everyone. Currently, the Aave App is still in the application stage.

Earnings logic: 6%-6.5% annualized, what supports it?

The current savings interest rate claimed by the Aave App is over 6% per year, which undoubtedly holds great appeal for investors seeking asset appreciation. The specific source of the interest rate is:

Base interest rate: The earnings from the Aave App come from the funds deposited by users, which are invested in the Aave lending protocol to earn interest for lenders. The Aave protocol requires borrowers to collateralize assets worth more than the loan amount, thus providing a strong level of security for the source of earnings.

Second-level compound interest: Unlike traditional accounts with “daily/monthly compounding,” the Aave App supports second-level compounding, where the earnings of the funds are instantly added to the principal every second, maximizing asset growth efficiency. This seemingly minor difference can result in significant yield differences due to the effect of time compounding.

Interest rate increase: According to the Aave official website, various value-added methods will be introduced in the future, such as inviting friends and setting up automatic deposits, which can yield a 0.5% increase in earnings.

It should be specifically noted that the Aave App only uses Aave as a source of revenue. The interest rate is not a fixed value and will be fine-tuned based on market borrowing demand, supply and demand of stablecoins, and other factors. However, the protocol guarantees that the base interest rate will never be negative, preventing users from experiencing a loss of principal.

Threshold: Supports fiat and stablecoin deposits and withdrawals, zero deposit fees, zero minimum deposit.

To achieve “Mass Adoption”, Aave App has designed the thresholds for “fees” and “access methods” to be extremely user-friendly:

Zero fees: no account opening fee, no management fee, no deposit fee.

Ultra-low minimum deposit amount: Traditional bank savings accounts often require a “minimum deposit of 100 yuan / 100 dollars,” while the Aave App supports a minimum deposit of 0.01 dollars, allowing users to invest flexibly according to their financial situation.

Diverse deposit methods: Support direct fiat deposits through 12,000 bank accounts and debit cards, as well as direct deposits of mainstream stablecoins such as GHO, USDT, and USDC.

Withdraw funds at any time: Small network fees may apply when withdrawing stablecoins.

Security: How are account protection and safeguard mechanisms in place?

As a financial product, security is a core concern for users. The Aave App builds a security system from three layers: asset underlying, account protection, and operational protection.

Since the Aave protocol requires borrowers to collateralize assets worth more than the loan amount, the security of the income source is relatively strong. Users' savings are effectively secured by collateral worth over 100%.

In terms of account protection, Aave Labs repeatedly emphasizes on its official website, App Store application description, and FAQ that the maximum protection limit for each account can reach up to $1 million. However, it is worth noting that currently, Aave has not launched this insurance protection plan, and the final terms, policy limits, and eligibility criteria will be disclosed upon launch. Users should fully understand the relevant details before participating.

Secondly, there is a biometric recovery mechanism. If users forget their password, they can choose to recover it through biometric methods such as facial recognition. In addition, the Aave App also offers advanced security features such as two-factor authentication and withdrawal whitelists. The withdrawal whitelist allows users to transfer funds only to pre-approved addresses, significantly reducing the risk of unauthorized transfers.

Of course, Aave also lists some potential risks, including but not limited to loan risk, infrastructure risk, and market risk.

Aave's ecological layout and strategic acceleration

The launch of the Aave App is no coincidence; it is a key move in the Aave ecosystem's transition from “professional DeFi lending” to “mainstream financial products,” backed by a series of intensive strategic layouts:

Complete tech stack: Aave has built a comprehensive service system covering “institutional-grade products (Horizon), DeFi (Aave Protocol), and consumer-grade products (Stable and mobile applications)” to cater to different user groups.

Acquisition Strengthening: On October 23, Aave Labs acquired San Francisco fintech company Stable Finance. Stable Finance has developed a consumer-oriented stablecoin savings application, simplifying the stablecoin savings process. Aave Labs founder Stani Kulechov stated at the time that this acquisition would further solidify their commitment to integrating on-chain finance into everyday finance (earning interest, lending, and saving).

Compliance First: On November 13th, Aave Labs announced that its subsidiary Push Virtual Assets Ireland Limited has received authorization as a Crypto Asset Service Provider (CASP) issued by the Central Bank of Ireland under the EU's Markets in Crypto-Assets Regulation (MiCAR). This authorization is applicable only to Push's fiat-to-stablecoin deposit and withdrawal services.

Summary

The significance of the Aave App lies not just in the “6%” high yield itself, but also in transferring on-chain earnings directly into consumers' hands, while supporting fiat currencies and stablecoins, as well as providing second-level compound interest.

From a product perspective, the launch of the Aave App essentially means that Aave has “packaged” its DeFi technological advantages into a “savings tool” that ordinary users can understand—users do not need to know professional terms such as “smart contracts” or “lending”; they can simply operate it like a bank savings account to enjoy the benefits of DeFi. The Aave App is not just a savings tool; it is also a bridge connecting traditional finance with the crypto world. This “dimensional reduction” operation not only helps to expand the user base of the Aave ecosystem but also provides a reference model for the “Mass Adoption” of the DeFi industry.

Of course, the Aave App simplifies “savings” while making “risk” more hidden. Users think they have simply switched to a high-yield bank/savings application, but in reality, they are still standing on the three layers of a smart contract, over-collateralization, and company credit.

If you are willing to view Aave as an intermediate layer that is “slightly riskier than banks but less risky than DeFi,” the Aave App is undoubtedly a Fintech product worth trying. However, if you consider the $1 million guarantee as “absolutely safe,” history has repeatedly shown that high returns are never without cost.