TL;DR
AAVE is the largest and most extensively tested lending protocol in decentralized finance (DeFi). As the undisputed leader in on-chain lending, it boasts a highly competitive and sticky moat. We believe AAVE is significantly undervalued despite its dominant position in one of crypto's most critical sectors, presenting substantial growth potential.
Overview
Launched in January 2020 on Ethereum, AAVE has operated for five years, emerging as one of DeFi's most battle-tested protocols. With $7.5 billion in active loans—five times larger than its closest competitor, Spark—AAVE dominates the lending space.
(Data as of August 5, 2024)
Key Metrics Outperform Previous Cycle Highs
AAVE is among the few DeFi protocols surpassing 2021 bull market metrics. For example:
- Quarterly revenue exceeded Q4 2021 peaks.
- Growth persisted even during flat markets (Nov 2022–Oct 2023), accelerating to 50–60% quarterly in 2024.
(Source: Token Terminal)
Total Value Locked (TVL) doubled year-to-date, driven by:
- Increased deposits.
- Rising collateral asset prices (e.g., WBTC, ETH).
TVL now stands at 51% of its 2021 peak, highlighting resilience.
Product-Market Fit and Sustainable Growth
Unlike the previous cycle—where platforms relied on unsustainable token incentives—AAVE’s recent growth is organic, fueled by:
- Speculative demand returning to markets.
- Higher loan utilization and interest rates.
During August 2024’s market downturn, AAVE captured liquidation fees from repaid loans, demonstrating robustness across volatile collateral types.
(Source: TokenLogic)
Valuation at Historic Lows
Despite strong fundamentals, AAVE’s P/S ratio hit a 3-year low at 3x, far below its 62x median.
(Sources: CoinGecko, Token Terminal)
👉 Why AAVE’s undervaluation presents a rare opportunity
AAVE’s Competitive Moats
- Impeccable Security Record: Zero major smart contract breaches.
- Network Effects: Liquidity begets liquidity, attracting institutional users.
- DAO Governance: Transparent, community-driven decisions with top-tier risk managers and developers.
- Multi-Chain Dominance: Leading TVL on all major EVM chains (excluding BNB).
(Data: DeFiLlama)
👉 Explore AAVE’s cross-chain liquidity advantages
Tokenomics Upgrade: Value Accrual & Demand Drivers
A proposed overhaul introduces:
- Dividend Mechanism: stkAAVE holders earn protocol revenue via stkATokens (e.g., aUSDC, awETH).
- Anti-GHO Tokens: Aligns stkAAVE holders with GHO borrowers, enhancing ecosystem synergy.
- Buybacks & Burns: Excess revenue redistributed when Treasury thresholds are met.
With near-full dilution, AAVE avoids inflationary pressures plaguing newer protocols.
Future Growth Catalysts
AAVE V4 Innovations
- Unified Liquidity Layer: Cross-chain borrowing without complex bridging.
- Non-EVM Expansion: Proposals for zkSync and Aptos deployments.
- RWA Integration: GHO-based products to attract institutional capital.
Macro Tailwinds
- Crypto ETF Inflows: BTC/ETH growth directly boosts AAVE’s TVL (75% collateralized by these assets).
- Stablecoin Demand: Lower interest rates may drive yield-seeking capital into DeFi.
FAQ
Q: Is AAVE’s growth sustainable without token incentives?
A: Yes—organic adoption and rising asset prices are key drivers.
Q: How does AAVE compare to centralized lending platforms?
A: Superior transparency, self-custody, and composability with DeFi.
Q: What risks does AAVE face?
A: Smart contract vulnerabilities (mitigated by audits) and regulatory uncertainty.
Final Thoughts
AAVE’s undervaluation ignores its:
- Market leadership.
- Upgraded tokenomics.
- Multi-chain and RWA expansion.
We view $AAVE as one of crypto’s best risk-adjusted opportunities.