AAVE

Aave is a decentralized lending platform that operates primarily on the Ethereum blockchain, though it has also expanded to networks like Polygon, Avalanche, and Fantom. It allows users to lend and borrow digital assets through smart contracts. Aave stands out for its flash loans, which require no collateral, and for offering both fixed and variable interest rates. Additionally, it features a decentralized governance model through its native token, AAVE.

1.1 Advantages

Flexible interest rates: It offers both fixed and variable rates, allowing users to choose the option that best suits their financial needs.

Asset diversity: It supports a wide range of cryptocurrencies, enabling users to diversify their investments and borrowing options.

Interoperability: In addition to Ethereum, Aave operates on other blockchains such as Polygon, Avalanche, and Fantom, allowing users to benefit from different ecosystems and lower fees.

Flash loans: These enable users to borrow assets without collateral, provided they are repaid within the same block, facilitating arbitrage and other trading strategies.

1.2 Disadvantages

Liquidations: If the value of collateral falls below a specific threshold, loans can be liquidated, potentially resulting in significant losses for borrowers.

Asset volatility: Cryptocurrencies used as collateral tend to be highly volatile, posing an additional risk for borrowers.

Lack of regulation: The decentralized and unregulated nature of Aave and other DeFi protocols may raise concerns for some users regarding fund protection and consumer rights.

Lack of assets: There is a shortage of additional options to use as collateral, which is crucial for enabling higher leverage or preventing margin calls that could lead to the liquidation of positions.

1.3 The Aave

The token is used for protocol governance, as well as staking and obtaining fee discounts. Although its issuance is unlimited, it currently undergoes a disinflation process, with 1 million tokens burned since its inception. Previously, the protocol had another token called LEND, which was replaced by this new token, with a significant portion allocated for the migration.

• 20%        –            Founding team and development.
• 65%        –            Community incentives and migration.
• 15%        –            Reserve for future allocations.

1.4 Products

Aave DeFi: Its main product is used for lending and staking of its native cryptocurrency. This application is multi-network, making it easier to bring liquidity from different networks.

GHO stablecoin: It is a decentralized and over-collateralized stablecoin, backed by assets within Aave.

1.5 Partnerships

In recent years, this project has been present in a significant number of markets, such as:

• Ethereum: Where its main network is located, with $16 billion in deposits.
• Arbitrum: A second-layer scalability solution for Ethereum, with $1.2 billion in deposits.

In total, it has $20.32 billion in net deposits supplied across 13 networks.

1.6 Direct Competition

Compound: It is a platform focused on automated lending and deposits on Ethereum, very similar to Aave. Compound offers dynamically adjusted interest rates based on market supply and demand.

MakerDAO: It specializes in the creation of the stablecoin DAI, which is backed by deposited crypto assets used as collateral.

Venus: This platform operates on the BNB blockchain and allows for both lending and the creation of synthetic assets.

1.7 Future Potential

Currently, Aave offers very low interest rates. Let’s compare these rates with those of the most commonly used lending platforms, such as Binance.

We can see that Aave offers a rate of 11% APY, which I consider quite high. However, the only advantage is that it allows for a wide range of cryptocurrencies to be used as collateral.

Now let’s compare AAVE with its largest market, Ethereum (ETH), and look at the same rate for USDT.

Aave offers an average interest rate of 5.51%, giving it a competitive advantage over Binance. However, its complexity is a drawback, as obtaining a loan on Aave requires transferring cryptocurrencies to third-party wallets before moving them to the application, while Binance allows loans with just a few clicks.

Currently, Aave has a market capitalization close to $2 billion, indicating significant growth potential, especially with increased adoption and the advantage of being deflationary. I believe it is undervalued and may experience substantial increases in the future. While it is possible to invest in its cryptocurrency, it can also be used for low-cost loans.

1.8 Technical analysis

1.8.1 Long term

In the long term, I would expect a bullish trend for the value of its token for the following reasons:

• Token demand: The interest in the token will rise due to its products, such as the stablecoin and its use for transaction payments.
• Deflation: The deflationary nature of the token will contribute to its appreciation over time.

1.8.2 Short term

In the short term, there may be an opportunity to buy at a discount of approximately 25%.

As we can see, a “head and shoulders” pattern has formed in the short term, indicating a possible trend change or, as I believe, exhaustion that could lead to a decline. The green zone I highlighted is a potential buying area where I plan to open a position.

While the price may change direction and fall, I see enough strength in the token and the project to hold for at least two years.

• Price: 122.5 USD
• Weight: 10% of the portfolio.