AAVE and its Awesome Ascension

Aave has seen a remarkable market cap surge during the tumultuous middle of 2024 for all of cryptocurrency. The now 37th largest market cap has gained +7% in just the past 24 hours, +23% over the past week, +27% for the month, and a staggering +88% in the last three months. This surge shows the growing interest in Aave as one of the top decentralized finance (DeFi) platforms, especially as it continues to innovate and adapt. Its strong performance has drawn both individual users and larger investors, who see Aave as a reliable platform in the evolving world of DeFi.

One key reason Aave has benefited is the loss of trust in Curve Finance, which suffered a major security breach during the summer of 2024. Curve, a DeFi protocol focused on stablecoin trading, was hacked, leading to a loss of millions. As a result, users began to leave the platform in search of safer alternatives. Aave’s strong security reputation made it an ideal option for those looking to move their funds, boosting Aave's market cap as it absorbed these users​.

Besides benefiting from Curve's struggles, Aave has taken strategic steps to grow. One of the most important moves has been its expansion into Layer 2 networks, such as Polygon and Optimism. These platforms offer lower fees and greater speed, attracting users who want a more cost-effective DeFi experience. Aave also introduced GHO, its own decentralized stablecoin, which allows users to mint GHO by locking in their crypto as collateral. This added a new feature to the Aave ecosystem, making it even more appealing to users. Several have proclaimed the platform is part of a 'DeFi Renaissance' as a result of initiatives like these.

From an on-chain perspective, there has been significant growth among wallets holding at least 100 AAVE. There are 3,229 wallets that are at least this size, and their number has increased by +7.5% since June 18th.

Another important factor driving Aave’s growth is its new tokenomics strategy. Instead of issuing more AAVE tokens as rewards, Aave started repurchasing tokens from the market, reducing the total supply. By decreasing the number of tokens available, this move created a scarcity that has helped increase Aave’s value. Additionally, Aave’s efforts to attract institutional investors, especially through its Aave Arc feature, have opened the door for larger players to participate in DeFi, adding further credibility to the platform.

On top of these news stories that have propelled traders into using the platform at an increased rate, many of these positive changes to the platform has resulted in dormant coins beginning to be moved back into circulation. Often one of the most prominent signals on Santiment, AAVE has shown signs of being in a long-term bull market as a result of its 'Mean Dollar Invested Age' metric showing consistent drops (indicating stagnant coins are moving at a healthy rate) since late July.

There were also a significant amount of non-believers that had been shorting the asset quite aggressively on Binance during the first three weeks of September. Even though these shorts have dissipated for now, it still appears that bears have AAVE on their radars as a potential short candidate. When significant shorts appear, probabilities of rapid rises (like we've been seeing for AAVE) only increase.

One caution flag is the enormous level of average returns for the average AAVE wallets right now. Wallets that have been active in the past 30 days are up +21% on average. While wallets active in the past 365 days are up a mammoth +64%. Historically, all assets eventually regress to the mean as it is a zero sum game. So while average traders are profiting so unanimously, be aware of the possibility of a correction to 'clear the slate' a bit.

From a sentiment perspective, it is actually quite encouraging to see that there isn't a major crowd bullish narrative forming right now. We did see some euphoria during its initial massive run-up in mid-August. But this latest one isn't being followed by any particular positive sentiment that would cause an imminent top.

Aave's ascension can be chalked up to several factors working together: the fallout from Curve’s hack, Aave’s expansion into cheaper Layer 2 networks, the introduction of the GHO stablecoin, a smarter approach to managing its token supply, and increased attention from institutional investors. All of these moves have strengthened Aave’s position as a leader in the DeFi space and contributed to its price gains in 2024.

There are some warning flags forming to indicate that prices have gotten a bit over-heated for the short term. But if you are a long-term hodler who doesn't mind some volatility in one of the hottest assets in crypto, there appears to be a pretty nice long-term horizon for AAVE.

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Disclaimer: The opinions expressed in the post are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.