Aave (AAVE) tokens staged a rally against the market trend, as the protocol continues to solidify its position in DeFi. AAVE remained in the green after adding Lido to its V3 products.
Lido (LDO) extended its influence as the top Ethereum staking protocol. Recently, Lido extended its partnership with Aave, one of the key sources of decentralized liquidity.
Aave protocol added a new V3 market for LDO tokens, drawing in more than $200M in the first two days after the launch.
The Aave V3 market is a fully decentralized liquidity pool, where anyone can join as a supplier, borrower, or liquidator. The new V3 market would allow LDO holders to extract value from stETH as lenders, while borrowers can access the asset after posting a collateral. V3 also allows one-block borrowing, also known as a flash loan.
Lido has worked with Aave vaults before, accruing significant wstETH liquidity. The newly launched Lido V3 market is the first isolated product with tailored liquidity and interest rate parameters.
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
Aave to offer new liquidity for holders of wstETH
Aave offered a specialized V3 market, tailored to the needs of Lido and its wrapped ETH tokens. The vaults will be able to carry stETH and wstETH easily, allowing fine-tuning of collaterals and borrowing rates. Holders of wstETH will be able to post the asset as collateral and receive unlocked ETH tokens for additional DeFi tasks. In the future, Aave may make other tokens available to borrow against wstETH.
The special vaults will also rely on DeFi Saver, a tool to automate collaterals and avoid liquidations. With the help of DeFi Saver, stakers will be able to open and close positions in a single transaction, to minimize risk.
Lido allows the creation of two tokens based on ETH. The stETH asset is the main liquid staking token. Holders can then choose to turn it into wstETH, which is staked and held for a predetermined period. The wstETH tokens are not locked, but are specifically created to be used within other DeFi protocols such as Uniswap or MakerDAO.
The wrapped version of stETH exists on multiple L2 protocols, making the token rather difficult to un-stake and bridge back.
Aave revives expectations of price growth
The Aave protocol continues to line up among the biggest fee producers in DeFi. At the same time, the AAVE token is considered undervalued, awaiting a breakout after years of stagnation.
So far, AAVE has performed short-term rallies, though far from its peak above $600. With the revival of DeFi, all eyes are on Aave for making a return. The protocol already produces more than $7.49M in weekly fees, often surpassing MakerDAO.
AAVE traded at a one-month high at $114.73, with the highest trading volumes for the past four weeks. The token had a 40% jump in the past week while blue-chip tokens were bleeding. The token keeps gaining attention for an even bigger potential breakout.
The Aave protocol also aggressively grew its value locked. Since the start of 2024, total value in Aave vaults has expanded by more than 100% to $12.79B. The Aave protocol is now spread across 12 chains and is the third-most influential DeFi app.
Despite the growing value of the lending protocol, AAVE tokens are still ranked outside the top 50 in terms of market capitalization. Aave value locked surpasses all of DeFi on the Solana chain, leading potential traders to see the AAVE token as undervalued. AAVE is also a high-float token with no upcoming unlocks. Additionally, AAVE has been underperforming against ETH over the years, suggesting the trend may reverse soon.
Additionally, the GHO stablecoin is expanding its supply with the potential to further boost liquidity in the Aave ecosystem. GHO recently exceeded 102M tokens minted. The stablecoin increased its supply and activity in Q2, while minting surpassed the burning of tokens and accelerated in July.
GHO also aims to become a multi-chain asset. In addition to AAVE, the stablecoin has moved to Balancer, MakerDAO, Uniswap and other protocols. The Maverick and Balancer DEX had the bulk of GHO volumes in the past month. Nearly 2,000 participants have injected liquidity to mint GHO, using the Flash Mint Facilitator feature.
Cryptopolitan reporting by Hristina Vasileva
