Liquidity Mining Comes to Lending Protocol Aave V2
This latest feature in Aave, which currently accounts for 17% of the crypto lending sector with Compound in the lead with 53% share followed by MakerDAO at 30%, could be expected to “kickstart DeFi Summer 2.0.”
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 1.22% Ethereum / USD ETHUSD $ 2,323.76
$28.351.22% Volume 16.71 b Change $28.35 Open $2,323.76 Circulating 116.89 m Market Cap 271.61 b 20 h Big Institutions Are Buying ETH for the First Time, Over 25% of Supply Already Used in Smart Contracts 1 d Tesla Reported No Changes in Digital Assets in Q2 But Recorded A Bitcoin-Related Impairment of $23 Million 1 d Bitcoin Hash Rate Recovers to 110 TH/s as Price Rallies Past $40k, Thanks to Largest Short Squeeze Ever BTC 1.72% Bitcoin / USD BTCUSD $ 40,486.58
$696.371.72% Volume 34.44 b Change $696.37 Open $40,486.58 Circulating 18.77 m Market Cap 759.93 b 19 h A Shift in Momentum: Binance Yields to Regulatory Pressure, the Definition of HQ Changing for CZ Too 20 h US Lawmakers See All the “Flashing Warning Signs” of Cryptocurrency Putting USD at Risk 20 h Big Institutions Are Buying ETH for the First Time, Over 25% of Supply Already Used in Smart Contracts
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 -4.21% Compound Coin / USD COMPUSD $ 0.00
$0.00-4.21% Volume 29 Change $0.00 Open $0.00 Circulating 53.73 b Market Cap 16.82 K 1 w Sushi Summar Drama: VCs Dumping Tokens & Counter-Proposing Premium Buy to Get Their Hands on Millions of SUSHI 1 w DeFi Activity Picking Up, Unique Addresses Surpasses 3 Million with Uniswap in the Lead 2 w BUSD Grows Over 10x This Year, Captures 10% of Stablecoin Market Share with USDT & USDC in the Lead MKR 5.22% Maker / USD MKRUSD $ 2,817.34
$147.075.22% Volume 128.04 m Change $147.07 Open $2,817.34 Circulating 991.33 K Market Cap 2.79 b 1 w Maker Foundation Dissolves to Give the Community Full Control Over the Protocol and DAO 1 w Neon Labs Integrates Cross-Chain EVM Solution Into Solana, Bringing Ethereum Dapps to the Blockchain 1 w DeFi Activity Picking Up, Unique Addresses Surpasses 3 Million with Uniswap in the Lead
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.