LD Capital: Short-Term Capital Flow Analysis for Aave
I. Project Overview
Aave is a leading lending protocol on Ethereum, now deployed on nine chains including Polygon, Arbitrum, and Optimism. The project was established in 2017. Its initial version was a peer-to-peer lending system, which was later revised due to inefficiencies in lending matching. Aave adopted Compound’s liquidity pool lending model to enhance liquidity. The current version of Aave is V3, aiming to offer higher capital efficiency, greater security, and cross-chain lending capabilities.
l Higher capital efficiency refers to the efficient mode (eMode), which classifies assets and sets risk parameters based on asset types. When a borrower’s collateral matches the type of borrowed assets, they can receive a higher borrowing limit.
l Increased security refers to the isolation mode, where new lending assets introduced by on-chain voting first enter this mode. In this mode, assets have a debt ceiling, and when used as collateral, only approved stablecoins can be borrowed. The goal is to list more long-tail assets on the protocol while ensuring its safety.
l Both of the above features are available in V3. The cross-chain lending (Portal) feature was ready for deployment in March 2022 when V3 was launched. However, for security reasons, the team has been cautious about its deployment. Notably, Aave’s cross-chain lending is not controlled by the Aave protocol itself but involves third-party cross-chain bridge protocols.
II. Business Data
1) Lending
According to defillama, Aave’s current Total Value Locked (TVL) stands at $4.672 billion, making it the leader in the lending sector. Aave initially supported a wider range of altcoins, some of which were later frozen due to potential risks. Currently, Ethereum V3 supports approximately 20 tokens, comparable to Compound V2, and both stablecoin and altcoin utilization rates are higher than Compound’s. Additionally, Aave was among the first to support Ethereum derivative tokens like stETH.
The rapid growth in Aave’s lending business can be attributed to its aggressive expansion strategy and its early multi-chain approach. By 2021, Aave had already ventured into chains like Polygon and has been dominant in most of them, thereby capturing a larger market share. However, Ethereum remains the primary lending platform.
2) Stablecoins
Aave’s stablecoin, GHO, was launched on July 15th of this year. Its 1.5% borrowing rate gives it a competitive edge over other stablecoins. Furthermore, AAVE stakers receive a 30% interest rate discount. All interest income from GHO goes directly to the treasury. The initial borrowing limit was set at $100 million, with the current lending assets at $23.37 million, holding a tiny market share in the stablecoin sector.
3) RWA
Aave, following Maker, is the second DeFi protocol to introduce RWA assets. Collaborating with Centrifuge Tinlake, the RWA market operates independently from Aave’s main lending market. Its current capital is approximately $7.1 million, quite small compared to Maker’s $2.3 billion. Only the USDC market offers deposit and lending APY currently, with a basic annual yield of 1.64% and a 3.23% wCFG liquidity mining yield.
III. On-chain Holdings Data
Aave has a total supply of 16 million tokens, primarily used for staking and governance. Aave’s protocol has an integrated Safety Module (SM) component. Token holders can stake their assets in it, designed to cover shortfalls if any occur in the Aave protocol. In return, stakers receive AAVE token rewards and a share of the protocol’s revenue. As seen from the official staking page, the daily emission rate of AAVE tokens is 1,100. Based on Coingecko’s current price of $63.2, this is valued at approximately $695,000. The circulating supply of AAVE tokens is now at 90.88%, with a 24-hour trading volume reaching $120 million.
The top 30 AAVE addresses hold 70.68% of the tokens, with exchanges holding 14.64%. Of this, Binance holds 11.06%. Binance is the most liquid trading venue for AAVE. Large holders account for 7.23%, and institutional holdings are at 2.09%, with the primary holders being Blockchain Capital and Jump Trading. The balance of large holder addresses has seen minimal change in the past 30 days.
Observing the address creation on-chain for the past 30 days, there isn’t any significant position building. A notable anomaly was an AAVE staker, @luggisdoeth, who redeemed 100,000 tokens from Aave V2 on August 22nd, valued at approximately $6.38 million. These tokens remain in the wallet without any movement, and it’s advisable to continuously monitor this address for any activity.
Looking at the on-chain interactions with the Aave contract over the past six months, there was a peak in activity from June 25th to July 18th. This surge was attributed to the rise in interest around the RWA concept after the founder of Compound introduced a new RWA project, leading to a corresponding recovery in the AAVE token price, which reached a high of $81 during this period.
As for the price trend of Aave, it currently resides in a relatively lower price range.
In summary, Aave is a leading on-chain lending project, with steady business development.Over the past 30 days, there hasn’t been any significant on-chain position building. There was a major address that undertook a token redemption, and currently, the price is in a relatively low range.
LD Capital
As a global blockchain investment firm, we have built a portfolio of over 250 investments since 2016, spanning across various sectors, including infrastructure, DeFi, GameFi, AI, and the Ethereum ecosystem. We focus on investing in projects with disruptive innovations, actively taking on the role of primary investors, and providing comprehensive post-investment services to these projects. We employ a combination of direct investment from our own funds and a distributed fund model to cover allstages of investment.
Trend Research
Trend Research division specializes in crypto hedge funds focusing on secondary areas within the crypto market. Our team members come from platforms and institutions like Binance and CITIC. We excel in macroeconomics, industry trends, and project data analysis. With funds dedicated to trend funds, index funds, hedge funds, and liquidity funds, we manage assets totaling over $400 million, including proprietary assets.
Cycle Ventures
A specialized early-stage investment firm in Web3, with a strong emphasis on three major areas: Infra, AI, and Dapp. We have a team of nearly 20 senior engineers and dozens of crypto experts as advisors, deeply assisting projects in strategic design, technical development, and liquidity enhancement. We are also actively involved with X Labs, a compliance service institution in Hong Kong, to help global projects establish a presence in Hong Kong and ensure compliance.
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