Value returning after the frenzy of Dogecoin? Liquidity mining brings billions in funds, AAVE rises against the trend

In recent times, the BSC ecosystem and animal-themed coins have been taking the lead, causing classical DeFi projects on the Ethereum chain to gradually fade from the market's memory. However, the DeFi token market regained activity only after news of Yearn releasing the forked token Woofy emerged yesterday. Among them, the decentralized lending platform Aave experienced a sharp decline today followed by a strong rebound, reaching an all-time high of $620.

Targeting Institutions

Aave's co-founder and CEO Stani Kulechov revealed on Twitter that Aave has an untapped reserve, related to an upcoming new product that seems to be tailored specifically for institutions.

It's a private pool for institutions that are still practicing before aping into DeFi

— stani.lens (🌿,👻) (@StaniKulechov) May 12, 2021

Upon this announcement, it quickly caught the attention of many netizens and also drove up the token price. While the specific details of the new product are still unclear, it is speculated that it may be similar to TrueFi, providing credit products specifically for institutional investors.

Liquidity Mining Brings in Billions of Funds

According to previous reports, Aave recently initiated a liquidity mining program through a governance proposal, which will reward eligible lenders or borrowers in the protocol with AAVE tokens for providing liquidity. This program not only helps drive up the total value locked (TVL) in Aave but also effectively reduces the overall protocol's liquidation risk.

Aave protocol supports a wide variety of cryptocurrencies, including ETH, LINK, KNC, ENJ, and WBTC, among others. However, these assets themselves have high volatility, and the higher the proportion of these assets in the protocol, the higher the protocol's overall risk. This is why Aave's liquidity mining program allocates most rewards to stablecoin pools. For high-risk assets like WBTC and ETH, borrowers can only earn a 5% annualized return, aiming to help Aave protocol reduce overall liquidation risks. Following the launch of liquidity mining, the overall TVL increased by around $10 billion, surpassing Compound to become the second-largest DeFi protocol on Ethereum.

Analysis of Aave Protocol Data

Launched in early 2020, Aave has seen significant growth starting from the third quarter of 2020. Cointelegraph recently mentioned the historical performance of the Aave protocol in a research report. The total value locked in the current Aave protocol is approximately $17 billion, with total deposits exceeding $45 billion to date.

According to Covalant's data, in 2021, the protocol sees an average daily asset inflow of around $231 million, with over 46,000 independent Ethereum users becoming lenders on Aave, averaging around $173,000 in assets per person. However, it is worth noting that the average value of $173,000 deviates significantly from the median value of $3,500, indicating that the majority of users on the Aave platform are retail investors.

Despite having ample users and capital flow on the lending side, the borrowing activity on Aave seems less active. According to Covalant's data, borrowing activities on Aave appear unstable, with daily lending sometimes less than $10 million and other times exceeding $400 million. The average daily borrowing amount from the beginning of 2021 is approximately $58 million.

There are approximately 15,000 independent Ethereum borrowers on Aave, recording 117,000 borrowing transactions on the Ethereum blockchain, indicating a lower proportion of retail investors in the borrowing market compared to the lending market.