Tether, in collaboration with the DeFi Aave platform, aims to improve decentralized flash loans.
As of now, a partnership has been announced that will bring Tether dollar (USDT) flash loans to Aave’s platform, in addition to DAI, USDC and TUSD.
USDT is the most widespread stablecoin in the world, with a market capitalization ten times greater than the second, USDC.
It also relies on an ERC20 token, compatible with Ethereum-based DeFi platforms such as Aave.
Aave Protocol is an open-source, not custodial DeFi lending protocol, which has been growing a lot lately. Among the DeFi protocols for lending, it is now in the fourth position in terms of locked funds, ahead of dYdX and bZx, with over 27 million dollars.
This protocol allows to obtain decentralized flash loans and, thanks to the use of USDT, it will be able to grow its users.
Historically, DAI has been the most used stablecoin anchored to the US dollar in the DeFi sector, followed by USDC, but the entry of the world’s leading stablecoin in this sector could soon make it the reference stablecoin for DeFi as well.
Moreover, according to data provided by Aave, USDT will also offer the best return for lenders in terms of interest, with a monthly return of 12.25%, compared to 8.08% DAI and 5.7% USDC.
Flash loans allow customers to borrow ERC-20 tokens without collateral, provided the loan is repaid within the same transaction as it was obtained. This way, collateral is not required, as the transaction is executed in its entirety, and involves repayment of the loan.
These loans are often used to take advantage of on-chain arbitrage opportunities, compete for liquidations and move open positions between different DeFi platforms.
USDT is a very liquid and reliable stablecoin, which is very useful for these new financial instruments.
Aave’s CEO, Stani Kulechov, said:
“USDt is the largest stablecoin in the market and it brings a vast amount of liquidity within the DeFi space. Together with Aave, this will help bootstrap DeFi composability via Flash Loans, lending and borrowing”.
Tether’s CTO, Paolo Ardoino, commented:
“Enabling USDt holders to earn a passive income via an open lending platform such as Aave opens exciting new possibilities for the DeFi space and USDt liquidity. USDt’s use in such innovative DeFi projects is evidence of its important function in the digital currency ecosystem”.