AAVE is the Best, Most Innovative Lending Platform. But it has a Problem…
Aave, the leading DeFi lending platform with more than $24 billion locked USD value is known as one of the most successful and innovative DeFi platforms around.
Everyone in DeFi knows and uses Aave either directly or indirectly through an automated yield farming platform, and they love it.
It’s simple. It’s easy. It works. It’s become a staple in DeFi.
However, Aave has a problem… they’re almost at a standstill with innovation, and demand to borrow assets is weak… that’s a bigger problem than you know.
Let me explain:
Aave started way back in 2017 as ETH Lend and has evolved over the years to come out on top over other lending platforms like Compound.Finance.
How did they come out on top? — They were more innovative than the rest.
- Aave features both stable and variable interest rates.
- Aave offers a larger number of assets.
- Aave allows for higher borrowing amounts compared to collateral.
- Aave offers Flash Loans.
- Aave is multichain (Ethereum & Polygon)
While these innovations are great and all, the last core innovation they had was flash loans. And that was more than 1.5 years ago (January 2020) when ETH Lend was rebranded to Aave.
Aave really hasn’t done anything special since… I mean, sure, they’re on the Polygon and Avalanche sidechains and have listed 31 different crypto assets for lending/borrowing which make up a total market size of more than $24 billion (as of October 4, 2021).
But guess how much of that $24 billion is actually getting borrowed?
Only about $10 billion… So only 41% of all deposited assets are getting utilized.
And get this, it’s almost all stablecoins! There’s almost no borrowing demand for anything else.
I mean, just look at this:
As you can see, the assets with the greatest $ amount borrowed are stablecoins, apart from $WETH and $WBTC which come in at #4 and #5 respectively. As for the non-stablecoin assets, their borrow amounts are negligible in comparison to stablecoins:
Just look at these borrow amounts?
It’s nothing, right?
That’s because traditional cryptoassets like $BAT, $LINK, $YFI, etc. do not have borrowing demand. I’ve written about this extensively here and here; so I’m not going to get into the why in this article.
But the point I’m trying to get across is — Aave can list as many crypto assets as they want for borrowing and lending, but nothing is going to change… Sure, their TVL will go up — BIG numbers look good! Right?
But does it mean anything?
Absolutely not.
What Aave needs are people borrowing assets and paying fees to do so! Borrowing is literally the lifeblood of Aave. Without it, Aave is nothing but a giant vault of crypto assets collecting digital dust!
Aave needs fees to grow and thrive. And fees are generated by the people who pay to borrow assets.
So… how can Aave increase borrowing activity? What can they do to innovate?
The answer is simple. The pieces are already in place. All that’s left to do is… educate and take action.
“What on earth am I talking about?”
Ampleforth and its elastic rebasing token — $AMPL — that’s what.
I’m dead serious.
$AMPL is the most innovative thing to happen to Aave since well… the Aave rebrand itself.
If you’re an Aave fan and $AAVE token holder, you’re going to want to read my next piece: $AMPL is Good for AAVE — This is Why.
It might just be the most important article you read all year as it holds the key to Aave’s future and it holds the answer to Aave’s problem — how to increase borrowing demand.
