Liquidity Mining Comes to Lending Protocol Aave V2

Liquidity mining is officially coming to lending protocol AAVE as Aave Improvement Proposal 16 gets passed with 62% support.

Introduced last week, the AIP introduces liquidity mining rewards for Aave V2. As per this proposal, 2,200 Staked AAVE (stkAAVE) will be distributed per day, representing around $1 million in rewards distributed daily to lenders and borrowers.

stkAAVE are rewarded instead of AAVE in order to align long-term incentives, disincentivize speculative farmers, and allow users to earn an underlying yield on top of the AAVE they earn.

According to the proposal, this will give LPs more governance weight up front and secure the protocol by increasing the amount of AAVE staked in the Safety Module.

These rewards will be allocated on a pro-rata basis across the markets based on the dollar value of the borrowing activity in the underlying market.

Estimated APR is, for DAI 12.67% – 37.6% on supply and borrowing respectively, on USDT 14.25% – 41.7%, on USDC 15.87% – 43.2%, on ETH 5.65% – 1.65%, and on BTC 6.25% – 1.85% ETH -1.78% Ethereum / USD ETHUSD $ 1,732.37
-$30.84-1.78% Volume 9.29 b Change -$30.84 Open $1,732.37 Circulating 122.37 m Market Cap 212 b 1 y Coinbase Predicts Substantial Growth of Newer L1 Chains & Institutionalization of Regulated DeFi 1 y A Possible Crypto Recovery Moving Into New Year, Risk-on Sentiments Send The Stock Market to Another Record High 1 y The Sandbox Game Is Migrating to Ethereum Sidechain Polygon and Launching A DAO in 2022 BTC -3.42% Bitcoin / USD BTCUSD $ 26,882.88
-$919.39-3.42% Volume 20.13 b Change -$919.39 Open $26,882.88 Circulating 19.33 m Market Cap 519.66 b 1 y SEC Commissioner says NFTs Might Fall Within Their Jurisdiction, Gensler Hires Senate Aid for Crypto Policy 1 y A Possible Crypto Recovery Moving Into New Year, Risk-on Sentiments Send The Stock Market to Another Record High 1 y Bitcoin and Ether Dump More Going Into Year-End, ETH Killers Showing Great Momentum

The motivation behind introducing liquidity mining rewards is to grow lending and borrowing activity in targeted markets, now that almost every major DeFi protocol is launching a liquidity mining program.

Rewarding AAVE to users also leads to broader distribution and protocol decentralization, ti said.

I can't think of a single fintech startup that has reached the scale of DeFi protocols in the same time & capital raised

Many DeFi protocols are <5 years old, generating at least $100M in revenue, profitable, w/ small teams & global expanding communities

* Note: just a sample👇 pic.twitter.com/i4QT3gC3NP

— SantΞago R Santos (@santiagoroel) April 26, 2021

In response to this, the price of AAVE surged more than 20% to $387. The $4.86 billion market cap coin is currently up 330% YTD.

According to some, this AIP could turn out to be “monumental” for DeFi and very well be the “catalyst to kickstart DeFi Summer 2.0,” just like Compound Finance’s liquidity did the original DeFi summer.

“This comes together to form a reasonable narrative for why ETH-based DeFi apps are due a re-rating,” said Wangarian, Capital allocator at DeFiance Capital.

Aave currently accounts for 17% of the lending sector in the crypto market, with Compound in the lead, having captured 53% of the market share, followed by 30% by MakerDAO. COMP 0.00% Compound Coin / USD COMPUSD $ 0.00
$0.000.00% Volume 0 Change $0.00 Open $0.00 Circulating 53.73 b Market Cap 2.59 K 1 y Australia's Largest Bank to Allow its 6.5 Million Users to Buy, Sell, & Hold 10 Cryptocurrencies via its App 1 y Compound Bug Puts 490k COMP at Risk to Become the Largest Fund Loss in a Smart Contract Incident 1 y Grayscale Makes Solana (SOL) the 4th Biggest Holding in its Digital Large Cap Fund, Adds Uniswap (UNI) too MKR 2.40% Maker / USD MKRUSD $ 683.27
$16.402.40% Volume 65.78 m Change $16.40 Open $683.27 Circulating 977.63 K Market Cap 667.99 m 1 y StarkWare Proposes to Deploy Aave on its ZK-Rollup L2 StarkNet 1 y Big Week Ahead? Bitcoin Rallies Towards ATH, Ether Sets A New High, Crypto Marks Hits $3 Trillion 1 y Grayscale Adds Avalanche (AVAX) and Terra (LUNA) to its Investment Product Consideration List

The number of outstanding loans has reached ATH of ~ $10b across Aave, Compound, and MakerDAO.

The lending sector went parabolic during Q1 2021, with DeFi’s most popular lending platforms reaching the highest ever $25 billion.