Aave, the governance token of the decentralized finance (DeFi) Aave protocol, has experienced a 17% decline in its price between July 30 and August 1. This downward movement has raised questions among investors about the overall health of the sector and whether other factors are exerting pressure on the Aave (AAVE) token price.
One contributing factor to the recent movement in the AAVE token can be attributed to the risks of cascading liquidations on DeFi protocols. This risk was highlighted by the exploit of the Curve Finance pool that began on July 30. However, it is important to note that Aave’s decentralized liquidity protocol has successfully weathered similar scenarios in the past and has a substantial amount of funds deposited in its Safety Module, amounting to $295.6 million.
The Risk of Liquidation Repercussions from Curve’s Founder
Concerns about potential liquidation repercussions on major protocols, including Aave, have been raised due to the significant loan held by Michael Egorov, the founder of Curve. Egorov currently holds a $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, posing risks to the ecosystem. However, the current liquidation price for the CRV token seems relatively secure at $0.37.
The situation with Egorov’s loan serves as evidence that Aave and other top DeFi protocols function as intended, without special rules or bailouts, even for project founders. While the Curve token debacle continues, there is no distinct issue with the Aave protocol itself, apart from notable players taking assertive actions to close their positions. This showcases Aave’s resilience and ability to operate without intervention.
Another factor influencing AAVE’s token performance is the stablecoin GHO. Since its launch on July 16, GHO has been trading below the $1 peg. The low fixed-rate borrowing options for GHO discourage borrowers from holding the token, as they seek higher yields in other stablecoins. This selling pressure leads to the depegging of the GHO stablecoin on decentralized exchanges, further affecting Aave’s token performance.
Total Value Locked and Revenue Comparison
Aave’s protocol currently boasts a substantial $5.1 billion in total value locked (TVL) across six chains. However, it recently saw a decline of 12.5% in this figure in just one week. In comparison, Uniswap and Compound have maintained relatively stable TVL figures at $3.75 billion and $2.23 billion, respectively.
When considering revenue, Aave falls significantly short of Convex Finance and Radiant with an annualized revenue of $12 million, according to DefiLlama data. However, some proponents argue that Aave’s higher fees compared to its competitors leave room for potential future revenue growth.
Recent Challenges and Aave’s Potential for Success
Despite experiencing a 17% decline in 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 navigate market fluctuations and potential risks.
While Aave’s annualized revenue may be lower compared to some competitors, the higher fees it charges could potentially pave the way for future revenue growth. Overall, Aave’s solid foundation and significant TVL indicate its resilience and potential for continued success in the evolving DeFi landscape.