Is the DeFi recovery imminent? Aave may lead a new round of rise in the industry.

Recently, several well-known figures in the industry have hinted that the DeFi sector may soon迎来复苏. An analyst recently shared an article discussing several key factors supporting the rise of DeFi 2.0.

• Decentralized Finance technology has made significant progress, improving scalability and security, and bringing new application scenarios, such as the tokenization of physical assets and on-chain credit products.
• The total locked value ( TVL ) has risen nearly 3 times since October 2023, and the trading volume of decentralized exchanges ( DEX ) continues to increase.
• Large institutions are entering the market through tokenized funds and stablecoins, indicating an increase in mainstream acceptance.
• Recent interest rate cuts have increased market liquidity, making Decentralized Finance yields relatively more attractive.
• The DeFi industry has become more mature and secure, preparing for the next round of rise.

From a broader economic perspective, a 50 basis point rate cut could signify a turning point. The M2 money supply has risen again, and the price trend of Bitcoin is similar to past cycles, suggesting that a rapid rise in the market may be imminent.

Despite warnings that aggressive rate cuts may signal an economic downturn and ongoing geopolitical tensions, the market remains generally optimistic at present. This round of rebound seems different from the past and may bring unexpected rises.

Considering the impact of the long-term bear market, the current valuations of DeFi projects are generally low, which suggests that the sector may be undervalued. Below, we will focus on analyzing the current state of Aave and assessing its potential role in the DeFi recovery.

Aave: Ready to Launch?

The TVL of Decentralized Finance has rebounded more than double from the low point in 2022, reaching $77 billion. However, it is still 50% lower than the peak of $154 billion in 2021. This indicates that despite the resurgence of interest, the valuation of Decentralized Finance is still far below the highs of the last bull market.

1. Market Position and Activity Level

Aave is one of the leaders in the Decentralized Finance space, providing decentralized cryptocurrency lending services. Since its launch in 2017, Aave has captured over 50% of the DeFi lending market in the past three years. Its success is attributed to continuous upgrades and the launch of new products such as the GHO stablecoin, as well as security measures like the $400 million security module. The "buy and distribute" plan supports the long-term rise of the token by creating stable buying pressure.

In 2024, Aave's TVL reached $13 billion, demonstrating strong user adoption and confidence in the platform. The launch of the GHO stablecoin increased revenue sources, while expansion to non-EVM chains like Aptos broadened market reach.

Aave's active loans have recently risen significantly to $7.4 billion, solidifying its dominant position in the Decentralized Finance lending market. This is attributed to recent tokenomics adjustments that have reduced inflationary pressure and redirected income to stablecoin stakers, enhancing the attractiveness to lenders.

2. Potential Undervaluation and Accumulation Opportunities

Despite its dominant position, DeFi projects like Aave are still undervalued. A few months ago, analysis indicated that Aave's price-to-fee ratio was 2.8 times, with an annual revenue of $240 million. Considering that 93% of the tokens are already in circulation, Aave faces little selling pressure and could see a rebound after a 2.5-year consolidation. Recent breakthroughs suggest that Aave may be in the early stages of a new upward trend, becoming an attractive long-term accumulation asset. This technical movement, combined with solid fundamentals, supports the view of its potential price recovery.

3. Institutional Interest

Recently, institutional interest in Aave mainly stems from the launch of Aave Arc, a permissioned DeFi product aimed at regulated financial institutions. Currently, more than 30 whitelisted companies can use the platform. Aave Arc aims to provide a compliant digital asset lending environment, bridging the gap between traditional finance and Decentralized Finance.

A well-known investment firm has included Aave in its digital asset portfolio. As the US may lower interest rates, the decline in traditional rates will make the high yields of Decentralized Finance more attractive, increasing demand.

The launch of the ETH ETF may also bring a significant influx of funds into Decentralized Finance, with Aave, as the leader in the Ethereum lending market, expected to be a major beneficiary, attracting new capital from institutional investors.

4. Competitive Advantage

Compared to its competitors, Aave stands out with its multi-chain capability and broader asset support. Aave operates across multiple networks, offering wider coverage, lower fees, and faster transaction speeds.

Aave also supports a wider variety of collateral types, from cryptocurrencies to tokenized assets and staked derivatives. This diversification, along with features such as flash loans and the GHO stablecoin, helps Aave capture a larger share of the Decentralized Finance market.

5. Future Development Catalysts

The Aave 2030 strategic proposal aims to expand the protocol beyond Ethereum in the coming years and introduce new features. The main objectives include:

1. Multi-chain expansion: Supports non-EVM chains to build cross-chain Decentralized Finance platforms.
2. Aave V4 Upgrade: Introducing physical asset integration, improving capital efficiency, and enhancing governance tools.
3. Active Capital Model: Set clear budget allocations and goals for the 2030 plan.

Aave's overall goal is to establish a sustainable, cross-chain, compliant Decentralized Finance ecosystem by 2030, adapting to market changes and becoming the core infrastructure for retail and institutional users.

Positive Factors

• Aave occupies 67% of the Decentralized Finance lending market share, managing $7.4 billion in active loans.
• Operating on multiple blockchains, planning to further expand.
• GHO stablecoin gains attention, increases platform revenue.
• Aave Arc attracts institutional investors to participate in Decentralized Finance.
• The potential launch of the ETH ETF and the decline in interest rates may bring more inflows.

Risk Factors

• The concentration of market share may amplify the impact of technical issues or regulatory risks.
• GHO adopting a slowdown or intensified competition may affect revenue.
• The global economic recession may reduce activity on DeFi platforms.
• The increase in geopolitical risks may affect investor confidence.
• The potential tightening of regulations remains a concern, especially in key markets.