Aave freezes its TUSD reserves for this reason
- Aave governance proposes to freeze TUSD reserves on the protocol.
- The protocol witnesses a decline in activity, but token continues to see a surge in price.
Realistic or not, here’s AAVE’s market cap in BTC terms
No TUSD for AAVE
The Aave governance recently proposed a freeze on the TUSD reserve within the Aave V2 Ethereum pool, aiming to temporarily halt the deposit and borrowing of TUSD. It ensured that current positions remain unaffected, enabling users to continue repaying and withdrawing TUSD from the pool.
The conservative approach aims to mitigate potential risks and uncertainties related to TUSD. By freezing the reserve, it allows the community to closely analyze the situation, identify any necessary adjustments or measures, and make informed decisions to safeguard the protocol’s stability and security.
At press time, 83.76% of users on Aave had agreed to this proposal.
State of the protocol
The changes made by the governance could impact the protocol’s state positively. The number of daily active users on the network declined by 10.7% in the last week. Subsequently, the revenue generated was also impacted as it declined by 12.3% during the same period according to Token Terminal’s data.
However, in contrast to the protocol’s performance, the AAVE token saw massive growth in terms of price over the last month. After testing the $47.51 level on the 10 June, its price surged by 52.98%. At the time of writing, the token was trading at $72.68. If it manages to test and break past the $76.68 resistance level, it would establish a bullish trend for AAVE.
The surge in price has caused the MVRV ratio of AAVE to rise as well. The surge in MVRV indicated that most addresses holding the token were profitable at press time. The high profitability of holders could incentivize them to sell their holdings for a profit, which could lead to a price decline.
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Furthermore, the Long/Short difference fell over the last few weeks, implying that most of these addresses were short-term holders.
These short-term holders are much more likely to sell their holdings in the future and potentially harm AAVE’s growth.