Aave, the governance token of the decentralized finance (DeFi) Aave protocol, has experienced a 17% decline in price between July 30 and August 1, dropping to the $62 level. While the $62 support has shown resilience, the current price of $64.40 is still 12% below the daily close on July 30. This decline has raised questions among investors regarding the future direction of the token price and whether it indicates a more cautious approach to the DeFi sector or if other external factors are exerting pressure on Aave’s market performance.
One factor contributing to the recent movement in the Aave (AAVE) token is the risks associated with cascading liquidations on DeFi protocols, stemming from the Curve Finance pool exploit that began on July 30. However, Aave’s decentralized liquidity protocol has successfully weathered similar scenarios in the past, and the protocol currently holds a substantial $295.6 million deposited in its Safety Module. This demonstrates the protocol’s ability to withstand potential liquidation risks and provides reassurance to investors.
It’s worth noting that Michael Egorov, the founder of Curve Finance, currently holds a significant $76.6 million loan backed by 357.3 million Curve DAO (CRV) tokens across three DeFi applications. This represents 40.5% of the entire CRV circulating supply and poses risks to the ecosystem, including potential liquidation repercussions on major protocols like Aave.
According to Delphi Digital data, Egorov also holds 267 million CRV tokens, backing a 54.2 million Tether (USDT) loan. With a 55% liquidation threshold, the current liquidation price for the CRV token stands at $0.37, which appears relatively secure for now. However, Egorov is paying a significant 50% annual percentage yield (APY) for this loan.
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The existence of such loan positions and the ongoing concerns surrounding the stablecoin GHO are influencing the performance of Aave’s token. The stablecoin GHO has been trading below the $1 peg since its launch on July 16. The lack of integration and farming opportunities for GHO discourages borrowers from holding the token, leading to selling pressure and the depegging of the stablecoin on decentralized exchanges.
Despite these challenges, the Aave protocol continues to demonstrate its strength in the DeFi space. It currently boasts a substantial $5.1 billion in total value locked (TVL) across six chains. However, it recently experienced a 12.5% decline in TVL in just one week, while Uniswap and Compound’s TVL remained relatively stable at $3.75 billion and $2.23 billion, respectively.
In terms of annualized revenue, Aave falls short in comparison to competitors. According to DefiLlama data, Aave generates $12 million in revenue, significantly lower than Convex Finance’s $52 million and Radiant’s $20 million. However, supporters argue that Aave’s higher fees compared to competitors leave room for potential future revenue growth.
Recent events might have tamed investor confidence in Aave. In May 2023, the older version of the Aave protocol (v2) encountered a bug that hindered users from withdrawing $110 million worth of assets on the Polygon Network implementation. However, the bug was promptly resolved within a week, and no funds were reported lost. Another contentious event occurred in June when a proposal was introduced to prevent a specific account, belonging to Curve founder Egorov, from accumulating further debt. This sparked debates among participants, with some questioning its impact on the principle of censorship resistance in DeFi.
Despite the recent decline in AAVE token price and TVL, Aave’s decentralized application remains a strong contender in the DeFi space. With a robust insurance fund and protocol fees, the protocol is well equipped to weather market fluctuations and potential risks. While its annualized revenue may be lower than some competitors, the higher fees could pave the way for future revenue growth. Overall, Aave’s solid foundation and significant TVL demonstrate its resilience and potential for continued success.
It’s important to note that this article provides general information and should not be taken as legal or investment advice. The views expressed are solely the author’s and do not necessarily reflect the views of Cointelegraph.
