What's hot in crypto this week?
Aave. Aave is a decentralized finance money market that allows users to earn interest on cryptocurrency and borrow against it. Aave launched its money market, which is based on the cryptocurrency Ethereum, in January 2020. Originally called EthLend, the money market was first created as a peer-to-peer lending protocol, but switched to a pooled protocol that allows for more dynamic asset listings, network liquidity and variable interest rates.
The platform was one of the first to include the novel decentralized finance product flash loans this past spring. These financial products allow users to make outsized positions on trades without any downside.
The money market launch reportedly came after completing a 2017 initial coin offering raising $16.2 million. (Initial coin offerings are similar to when company's go public in initial public offerings.)
The price of LEND has risen by over 3,600% since Jan. 1. The major part of the rally occurred over the past seven weeks, after Aave introduced credit delegations in early July. This means users can delegate their credit line to other users they trust. And, by doing so, the delegating user is able to earn higher undercollateralized lending rates, while trusted user getting the credit is able to source liquidity from Aave without collateral.
Aave on July 29 announced it would swap its native LEND token for the new AAVE governance token, in an effort to decentralize ownership of the Ethereum-based money market.
The team also announced Aave V2 on Aug. 14. This move reduces transaction costs and improves the overall user experience, according to Aave. It provides the ability to swap debt from one currency to another and the ability to swap collateral without returning the loan.
How has LEND’s FCAS score changed?
LEND FCAS increased 25-points (2.85%) in the past month, driven by a 35-point (3.88%) climb in User Activity. Developer Behavior and Market Maturity also rose 15-points (1.88%) and 23-points (2.73%) respectively.
What's Flipside's take?
Aave is betting that decentralized finance will be able to beat interest rates on traditional liquidity sources, such as private placements and bonds. With credit delegation and the launch of v2, Aave is uniquely positioned to provide liquidity for financial debt markets worldwide. The borrowers could be cryptocurrency exchanges, market makers, money lenders, institutions, businesses, non-governmental organizations and governments. The money market protocol has already grown to over 1.4 billion market size.
From our perspective, decentralizing ownership of the protocol is key if Aave is to scale. Right now, Aave is the one matching the delegators and the borrowers. As it decentralizes, the vision is that the holders of Aave’s governance token will set up pools where they would seek out entities looking for liquidity options and assess whether they were good credit risks. Then delegators could look at those pools and decide whether to delegate to them.
In the same vein, the Aave team is looking to bring home mortgages to decentralized finance by tokenizing home equity. Then AAVE holders could vote to accept those home equity tokens as collateral on Aave.
The Flipside Crypto Asset Score Tracker provides institutional and sophisticated retail investors the ability to track over 500 cryptocurrencies' fundamentals. FCAS Tracker is currently free to a select group of new users as it continues to develop the product. Visit Flipside here to gain access to Flipside Analytics.