Aave Protocol Unfazed By Market Jitters, Surges 21%

Crypto lending protocol Aave restarts its bullishness as the market resets. AAVE, the namesake token of the platform, surged to nearly 20% in the past 24 hours, capturing the momentum of the broader market which is still up by over 5% since yesterday. 

Aave’s recent developments also contributed to this rally. However, the broader crypto-finance market might be in disagreement with the platform’s current performance.

Lido Finance, a crypto staking platform, recently onboarded the platform’s Lido V3 market instance, custom-made for Aave which is tailored to Lido’s staked Ethereum (stETH) and wrapped staked Ethereum (wstETH). This will significantly improve user experience in lending and borrowing stETH and wstETH as it can be fine-tuned to maximize profitability for Aave users. 

The Lido V3 market on @aave has been live for 48 hours and just surpassed $200m in market size

Here’s what you need to know pic.twitter.com/aNSGxsq2fy

— Lido (@LidoFinance) July 31, 2024

This helped AAVE recover in price. The platform also experienced a significant bump in the total value locked (TVL) with a near 10% increase since yesterday. However, the broader market seems to be at odds with Aave’s recent bullishness.

The 2nd quarter revealed some cracks within the lending portion of the decentralized finance (DeFi) space. According to CoinGecko’s 2nd Quarter research, over $31.87 billion in TVL is dedicated to lending, marking a significant cut of the pie on DeFi. However, the main functions of DeFi such as staking, lending, and cross-chain bridges saw a huge decrease in TVL, totaling over $8 billion. 

The value that left these sectors returned in the form of restaking in other platforms or to basis trading protocols that saw a whopping 154% increase in TVL in Q2. 

This decrease in lending activity also translated to the assets on the platform. Blockanalitica reveals that a majority of the wallets that hold collateral on Aave are either medium or high risk.

If the market drops by 25%, majority of the wallets are in the red which represents liquidation. This shows that lending on DeFi remains to be dangerous, especially with the current market volatility experienced this week. 

AAVE is currently occupying the range between $93 and $102. This position, although a big downgrade from its return from June price levels, is a solid support for a possible breakthrough in the near future.

However, as it moves independent of the market, this current bullishness might just be a short squeeze or a sudden increase in price before a sharp fall. 

With the current market environment reflecting this volatility, AAVE will have a hard time securing its June price level bringing in the possibility of further downturns. 

Featured image from Zerion, chart from TradingView