Crypto lending protocol Aave has reignited its bullish trend as the market undergoes a reset. The platform’s native token, AAVE, surged nearly 20% in the past 24 hours, riding the wave of the broader market that has seen a more than 5% increase since yesterday.
Recent developments on Aave have played a significant role in this rally. Lido Finance, a crypto staking platform, recently integrated its Lido V3 market instance into Aave. This new feature, designed specifically for Aave, is tailored to handle Lido’s staked Ethereum (stETH) and wrapped staked Ethereum (wstETH). The integration is expected to significantly enhance user experience in lending and borrowing these assets, offering more fine-tuned profitability for Aave users.
Lido announced the milestone on social media, noting, “The Lido V3 market on @aave has been live for 48 hours and just surpassed $200m in market size.” As a result, AAVE’s price has recovered. The platform has also seen a notable increase in its total value locked (TVL), which has risen by nearly 10% since yesterday. However, the broader market’s reaction to Aave’s bullishness remains uncertain.
CoinGecko’s 2nd Quarter research has pointed out vulnerabilities within the lending sector of decentralized finance (DeFi). Over $31.87 billion in TVL is dedicated to lending, yet the core functions of DeFi, such as staking, lending, and cross-chain bridges, saw a significant decrease in TVL, totaling over $8 billion. The value migrating from these sectors returned through restaking in other platforms or basis trading protocols, which experienced a dramatic 154% increase in TVL during the second quarter.
The decline in lending activity has also affected assets on Aave. Data from Blockanalitica indicates that most of the wallets holding collateral on Aave are categorized as either medium or high risk. If the market were to drop by 25%, the majority of these wallets would be in the red, leading to potential liquidations. This highlights the perilous nature of lending on DeFi, especially given the market volatility observed this week.
AAVE’s market cap currently stands at $1.4 billion. The token is trading in a range between $93 and $102. Despite being a significant drop from its June price levels, this range may serve as solid support for a possible breakout in the near future.
However, the current bullish momentum could merely be a short squeeze or a sudden price spike before a sharp decline. Given the volatile market environment, AAVE might struggle to reclaim its June price levels, raising the possibility of further downturns ahead.
