How to do your Aave taxes with Koinly
Whatever your Aave transactions, you'll need to figure out if you owe tax on them. Koinly can help. It's this simple:
Sign up to Koinly and choose your country and currency.
Connect the wallets you use to interact with Aave to Koinly to import all your trades safely and securely
Koinly identifies the cost basis of all your coins and tokens (including ERC-20 tokens), as well as your taxable transactions.
Koinly calculates any capital gains, losses, and income from your taxable transactions.
Koinly generates your crypto tax report - ready to help you file with your tax office, or hand it over to your accountant.
How to import Aave transactions to Koinly automatically
To import your Aave transactions, you'll need to connect each wallet you use with Aave to Koinly. This is easy to do, you just need your public address - and we have steps on how to get your public address for all the most popular wallets on our integration pages.
As Aave supports multiple blockchains, this may mean getting multiple public addresses from each wallet to ensure you're importing your transactions from all blockchains. Here’s an example of how it generally works.
Open or log in to your wallet
Select the blockchain you’d like to connect to - for example, Ethereum or Avalanche
Copy your public address
Sign up or log in to your Koinly account and go to the wallets page
Search for and select the blockchain you’d like to connect to - for example, Ethereum or Avalanche
Give your wallet a name - for example - Coinbase Wallet
Paste your public address
Want to learn how your Aave transactions are taxed? Find out more in our Aave taxes guide.
What is Aave?
Aave can refer to two things - the DeFi protocol itself or the native governance token of the Aave protocol (AAVE).
Aave is the leading decentralized lending protocol. It’s built on the Ethereum blockchain (it’s also now deployed on the Polygon and Avalanche blockchains). Investors can borrow and lend a wide variety of cryptocurrencies, as well as stake AAVE tokens to get more AAVE.
Aave was set up back in 2017 as ETHLend, so it’s practically an old-timer for the DeFi market. The idea was to allow investors to lend and borrow without a third party - like a crypto exchange. They’ve now achieved all of this through liquidity pools.
How does Aave work
Aave is what’s known as an algorithmic money market. This means instead of matching loans to lenders and borrowers, loans are obtained from a liquidity pool. So investors both add liquidity to a given pool to loan their assets or borrow crypto from a pool.
The borrow APR (interest rate) and deposit APY (yield percentage) are dependent on the utilization rate of the assets in the pool. This means if nearly all the assets in the pool are utilized (by being borrowed) the borrow APR and deposit APY will be high. Whereas if the pool has more liquidity as most of the assets aren’t utilized the borrow APR and deposit APY will be low.
When you lend crypto on Aave, you’ll get aTokens in return to represent your asset in the pool. You’ll get aTokens at a 1:1 ratio based on your deposit, so say you deposit 1000 DAI, you’d get 1000 aDAI back. Your earnings are paid in the same manner, in that when your deposit increases, you’ll get additional aTokens representing this increase.
For some specific pools, you’ll also get additional tokens for adding liquidity. For example, lenders who currently deposit to the WETH.e pool on Avalanche will receive WAVAX tokens. This incentivizes users to add liquidity to new pools.
When you borrow crypto on Aave, you’ll need to put up collateral (unless you’re making a flash loan). You don’t have to put up the same crypto you’re borrowing as collateral and that’s a lot of the appeal for investors. It means they can still hodl a given crypto, but access other cryptocurrencies to invest in other DeFi platforms, for example, Yearn.Finance. Excluding flash loans, all loans on Aave are overcollateralized - this means you need to deposit more than you want to borrow. This protects lenders from the volatility of the market, so if the value of your collateral falls below your borrowed crypto - your collateral liquidates.
Flash loans are a specific product on the Aave platform. These loans are uncollateralized - but you can only use them to make one transaction. So you can borrow a large amount of crypto, provided you return the loan within the same transaction. This is ideal for arbitrage traders - who balance prices of different cryptocurrencies across different platforms.
How do you use Aave?
The easiest way to access Aave is with a browser wallet like MetaMask or Trust Wallet as these can be configured to support all blockchains on Aave.
Once you've connected your wallet, just choose whether you want to deposit (lend) or borrow and find the pool you'd like to add to/borrow from.
What can you do on Aave?
As we’ve explained above, the main function of Aave is lending and borrowing crypto, so you can:
Lend your crypto by depositing it to liquidity pools and earn interest (as well as additional tokens sometimes).
Borrow crypto from liquidity pools by using your own crypto as collateral.
Take out flash loans of crypto with no collateral for arbitrage opportunities.
There’s also a couple of other features in the Aave protocol that investors love.
Staking on Aave
You can stake your AAVE tokens within the platform to earn more Aave. When you stake AAVE, your AAVE tokens get locked up in Aave’s ‘safety module’. This is a reserve fund in case of a shortfall event - so there is a risk to staking you should be aware of before you lock up funds.
Once you’ve staked your AAVE tokens, you can monitor your AAVE token rewards and claim them at any point. At the time of writing, you can earn 7.11% APY.
When you want to unstake your AAVE, you’ll have a cooldown period of 10 days before you can withdraw your funds. When you withdraw your funds you trade your stkAAVE back for AAVE tokens.
Meet Aave’s adorable foray into gamified DeFi - the Aavegotchi. Aavegotchi's are playable NFTs that are created by staking DeFi tokens directly into the NFT. Your Avavegotchi will generate interest based on your staked DeFi tokens. It'll also increase in skill (kind of like Axies) based on your interactions with it, so you can later sell your Aavegotchi on the Bazaar marketplace, or buy a new one.
The AAVE token is Aave’s governance token, but you can trade, sell, and buy AAVE tokens on most decentralized and centralized exchanges. You can also use your AAVE token to vote on various proposals for the Aave protocol.