Crypto price takes double-digit hit, but strong fundamentals point to eventual recovery.
AAVE price takes double-digit hit, but strong fundamentals point to eventual recovery

AAVE, the governance token of the decentralized finance (DeFi) protocol Aave, experienced a 17% decline between July 30 and August 1, reaching the $62 level. While the $62 support has demonstrated its resilience, the current price of $64.40 is still 12% below the daily close on July 30. Investors are now questioning whether this movement signifies a more cautious approach to the strong crypto sector or if other factors are exerting pressure on the AAVE token price.

Part of the recent movement in the AAVE token can be attributed to the risks of cascading liquidations on DeFi protocols, resulting from the Curve Finance pool exploit that commenced on July 30. However, Aave’s decentralized liquidity protocol has successfully survived previous identical scenarios and the protocol has a substantial $295.6 million deposited in its Safety Module.

Notably, Michael Egorov, the founder of Curve, currently holds a substantial $76.6 million loan backed by 357.3 million CRV tokens across three DeFi applications, as reported by Delphi Digital. This represents 40.5% of the entire CRV circulating supply and poses risks to the now crypto ecosystem, raising concerns about potential liquidation repercussions on major protocols, including Aave.

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According to Delphi Digital data, specifically on Aave, Egorov 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 at the moment. However, it’s essential to note that Egorov is paying a significant 50% APY for this loan.

This situation serves as evidence that Aave and other top crypto websites DeFi protocols function as intended, without special rules or bailouts, even for project founders. While the Curve token debacle continues, there’s no distinct issue with the Aave protocol, aside from notable players taking assertive actions to close their positions.

Aave stablecoin trading below $1 is an ongoing concern

The performance of AAVE’s token is also affected by the GHO stablecoin, which has been trading below the $1 peg since its launch on July 16. According to 21Shares’ on-chain data and research analyst, Tom Wan, the stablecoin’s low fixed-rate borrowing is a double-edged sword.

The lack of DeFi integration and farming opportunities for GHO discourages holders from borrowing the token, as they seek higher yields with other strong crypto. Tom Wan emphasizes that this selling pressure leads to the depegging of the GHO stablecoin on decentralized exchanges.

The Aave protocol currently boasts a substantial $5.1 billion in Total Value Locked (TVL) across six chains, but it has experienced a recent 12.5% decline in this figure within just one week. In comparison, Uniswap’s and Compound’s TVL remained relatively stable at $3.75 billion and $2.23 billion, respectively.

However, it is worth noting that Aave’s annualized revenue is $12 million, as per DefiLlama data, which falls significantly short of Convex Finance’s $52 million and Radiant’s $20 million.

Despite this, some proponents argue that Aave’s higher fees compared to its competitors leave room for potential future revenue growth in the now crypto space, especially as more applications of web 3.0, such as the Apple Health application, become popular. Additionally, more people are turning to top crypto websites like AMP Crypto Now for the latest AI research and AI this week.

Recent events might have tamed investors’ views on Aave

In May 2023, the older version of Aave protocol (v2) encountered a bug that hindered users from withdrawing $110 million worth of assets on the Polygon Network implementation. This issue, caused by an interest rate curve patch on May 16, was promptly resolved within a week, and no funds were reported lost in this occurrence.

On June 12, a proposal was introduced to prevent a specific account, belonging to Curve founder Michael Egorov, from accumulating further debt. This move sparked debates among participants, with some contending that it infringed upon the principle of censorship-resistance or “neutrality” in DeFi.

Despite the recent 17% decline in the AAVE token price and a 12.5% drop in 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.

Aave’s annualized revenue may be lower compared to some competitors, but the higher fees could potentially pave the way for future revenue growth. Overall, Aave’s solid foundation and significant TVL signal its resilience and potential for continued success, even with the recent crypto market turbulence.

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