Aave’s growth story – Here’s what’s pushing its dominance in DeFi

• Aave, at press time, led DeFi lending with $21.2B in deposits and $8.5B in loans
• Recent changes in tokenomics boosted AAVE’s price, but market signals remained mixed

In the fast-growing world of decentralized finance (DeFi), lending protocols offer a groundbreaking alternative to traditional banking. They enable direct user-to-user transactions without intermediaries.

DeFi’s pros and cons

These platforms rely on smart contracts to automate and secure agreements, providing transparency and safety.

However, DeFi is not without risks, as smart contracts are not yet legally recognized. With billions in deposits and loans, understanding DeFi’s complexities and risks is crucial. 

Why is Aave in the spotlight?

In a recent analysis shared by Franklin Templeton Digital Assets on DeFi Lending Protocols, Aave [AAVE] seemed to be emerge as a key player. Aave, a pioneering platform in the DeFi space, currently manages around $21.2 billion in deposits and $8.5 billion in loans – A sign of its significant influence in the sector.

Launched on the Ethereum blockchain in 2017, Aave operates through a liquidity pool model, allowing users to lend and borrow crypto assets seamlessly.

Aave’s standout feature, “flash loans,” permits users to borrow without collateral, provided the loan is repaid within the same transaction block. This makes it an attractive option for strategies like arbitrage and debt liquidation. 

The post added, 

“Currently, Aave’s cumulative flash loan volume is $7.8 billion, with daily flash loan volume accounting for around 4 bps of daily borrows volume.”

Aave’s growth trajectory

Aave has seen significant growth in its total value locked (TVL), particularly during the latter half of 2021 when volumes surged by an impressive 363%.

This upward trajectory saw renewed momentum in early 2024, with a YTD growth rate nearing 90%. This was a sign of robust recovery aligned with broader trends in the crypto market.

This growth also highlighted Aave’s pivotal role in the DeFi ecosystem. Especially as it continues to expand its influence and adapt to evolving market dynamics.

Expanding on AAVE’s potential, the post read, 

“In late July 2024, Aave proposed to activate a fee switch to stop issuing new AAVE tokens as staking rewards and instead repurchase AAVE tokens from the secondary market.”

In fact, recent adjustments to Aave’s tokenomics, particularly the reduction in the supply of AAVE tokens, have led to a notable surge in token prices. By curbing the issuance of new tokens and increasing demand, these changes are poised to enhance the token’s value in the market.

What’s AAVE’s price trend telling us?

On the price front, AAVE was holding somewhat steady on the charts, rising by 0.96% in the past 24 hours to trade at $125.62. On the indicators front, the RSI, positioned above the neutral zone, indicates a bullish trend.

Finally, the MACD line was below the Signal line – A sign of bearish pressure which seemed to leave the market’s direction uncertain.

Source: TradingView

This mix of bullish momentum and underlying bearish signals pointed to a volatile period ahead. These make AAVE’s future movements difficult to predict.