DeFi -Decentralized Finance on dark blue abstract polygonal background. Concept of blockchain, decentralized financial system.

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One of the crucial standard actions within the broader cryptocurrency ecosystem is decentralized finance, or DeFi. DeFi is completely different from conventional finance in that depositing and lending is completed with out regular banking intermediaries. To perform this, customers have to have a normal understanding of among the technical variations between merely depositing worth with an establishment and doing it by way of a decentralized utility. Whereas broad crypto adoption stays robust judging from pockets handle development and hashrates of main cash, many customers nonetheless require simpler to grasp interfaces. This UI drawback led to the rise of custodial crypto establishments like Celsius Community (CEL-USD) and Voyager Digital (VGX-USD)(OTCPK:VYGVQ) .

Whereas lots of the failures of these centralized crypto lending fashions have been well-chronicled, the DeFi house has held collectively pretty properly as CeFi crypto enterprise have collapsed amid poor danger administration insurance policies. One of many high protocols within the DeFi house is Aave (AAVE-USD). I recently added Aave to the BlockChain Response portfolio and can now share among the elementary particulars that I preferred concerning the token.

Platform Utilization & Adoption

As a lending platform, Aave swimming pools funds from numerous lenders collectively to create a diversified liquidity pool with algorithmically decided charges for every participant. Traditionally, that pool can take deposits of stablecoins like like USCoin (USDC-USD) and Dai (DAI-USD) or native chain tokens like Ethereum (ETH-USD). The quantity of contributors within the lending pool has elevated dramatically even because the crypto ecosystem as a complete has struggled with coin costs and CeFi insolvencies.

AAVE Active users

Lively Customers (Token Terminal)

The lively customers of the platform has been constantly rising even throughout the crypto contagion selloffs. Because the finish of 2021, the variety of depositors has tripled and debtors have doubled.

December 2021 August 2022 Change
Depositors 7,155 28,221 294.42%
Debtors 7,088 21,423 202.24%
Withdrawers 6,539 12,008 83.64%
Repayers 7,117 11,630 63.41%

Supply: Token Terminal

Along with the rise in utilization of the community as a lending protocol, holders of the token has elevated by about 17% yr so far from 103k holders to over 121k:

AAVE Token Holders

AAVE Token Holders (CoinMetrics)

Community Footprint

Earlier this year, Aave launched Aave V3 in an try to department out from Ethereum lending into different networks together with Avalanche (AVAX-USD), Polygon (MATIC-USD), and Optimism (OP-USD), amongst others. Because the integration of these extra blockchains, we have seen a good quantity of liquidity added from the brand new networks

Aave 3 TVL

Aave 3 TVL (DeFi Llama)

This places whole worth locked (or TVL) by way of the Aave protocol at over $6.3 billion. Whereas ETH remains to be the dominant community, the TVL breakout by blockchain exhibits rising curiosity in various chains:

Chain Approximate TVL
Ethereum $5 billion
Avalanche $736 million
Optimism $397 million
Polygon $389 million
Others $40 million

Supply: DeFi Llama, as of 9/9/22

For a bit extra context, the choice networks have seen development in native unit deposits when adjusting for USD value declines within the cash themselves:

Native Models June 1, 2022 September 9, 2022 Change
Aave 2 (ETH thousands and thousands) 4.51 3.41 -24.39%
Aave 3 (AVAX thousands and thousands) 48.85 59.90 22.62%
Aave Whole (ETH thousands and thousands) 5.16 3.88 -24.81%

Supply: DeFi Llama, as of 9/9/22

I selected June 1st as a place to begin as a result of it provides us a few months from the beginning of V3 when new networks had been on-boarded. This was additionally throughout the thick of the crypto contagion following the collapse of Terra (LUNC-USD) and numerous CeFi platforms. What this tells us is that whereas the TVL is down because the starting of the summer time, the expansion is within the V3 replace.

Stake ETh

Dune Analytics

This needs to be unsurprising as roughly 1 million ETH has been staked in Beacon in anticipation of the merge from PoW to PoS because the starting of June, thus opening the door for various currencies to be pooled by way of Aave.

Different Catalysts

This week, a proposal was approved by the Aave neighborhood to grant a bit over $16 million in retroactive funding to the event workforce that labored to construct out Aave V3. The vote acquired robust help as evidenced by receiving greater than twice the required 320k votes to cross. For my part, grants like this will help foster better curiosity in protocol enhancements from the bigger developer neighborhood.

In late July, the Aave neighborhood additionally permitted a vote to launch an Aave native stablecoin (GHO-USD). Whereas full implementation of that initiative will take extra time, the marketplace for stablecoins has grown tremendously over the past yr with roughly $12 billion in belongings a yr in the past to over $100 billion now.

Stablecoins

Dune Analytics

Tokenomics & Provide

The token itself features as each a utility token and a governance token. Holders of AAVE cash can get higher charges on charges after they deposit AAVE as collateral. The holder breakout has the highest 100 addresses accounting for 86% of the token provide.

AAVE holder breakout

Holder breakout (Etherscan)

10% is held by the ecosystem reserve with an extra 14% staked. This degree of high pockets focus places AAVE roughly consistent with lending protocol friends like Compound (COMP-USD) which has about 90% of token provide within the high 100 addresses.

AAVE Circulating Supply

Circulating Provide (Messari)

Because the circulating provide has moved up steadily over the past yr, the worth of the AAVE token has declined. Nevertheless, with a complete provide of 16 million tokens, 88% of the availability is now circulating and inflation danger is far decrease than lending protocol friends:

Market Cap Rank Lending Protocol Circulating Provide
42 Aave 88%
100 Compound 72%
153 SushiSwap Kashi (SUSHI-USD) 51%

Supply: CoinMarketCap

From a coin provide dynamic, AAVE is a token that ought to profit enormously from a broad rise in crypto asset values given the extent of holders, community exercise, and chain diversification.

Dangers

Like all cryptocurrencies and tokens, AAVE carries danger from each risky value swings and potential regulatory headwinds. DeFi remains to be an inherently dangerous house to take a position and token consumers needs to be ready for vital capital losses if the broad crypto market takes one other leg down or if authorities laws develop into too burdensome for these protocols to function.

Abstract

The Aave protocol is branching out from simply an Ethereum-focused lending protocol to different blockchains. I feel the expansion in token holders and lively platform customers is an effective factor for community adoption. As a utility and governance token, this justifies the case for natural token demand. Because the circulating provide of the AAVE tokens is now 88%, there is not a lot of a dilution danger to present token holders. I’ve taken a place in AAVE within the BlockChain Response portfolio and I consider AAVE will outperform different crypto belongings when crypto winter is within the rear view mirror.


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