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 7.65% Ethereum / USD ETHUSD $ 4,179.72
$319.757.65% Volume 29.44 b Change $319.75 Open $4,179.72 Circulating 118.02 m Market Cap 493.28 b 19 h Cosmos Unveils New Blockchain, Sagan, A Canary Network to Allow Developers to Run Tests And Experiments 23 h Massive Retail Demand for First Bitcoin Futures ETF Made its Debut As the 2nd Highest Traded Fund In History 1 d Interactive Brokers Launches Bitcoin, Ethereum, and Crypto Trading for RIAs in the US BTC 0.96% Bitcoin / USD BTCUSD $ 64,683.77
$620.960.96% Volume 51.48 b Change $620.96 Open $64,683.77 Circulating 18.85 m Market Cap 1.22 t 7 min Bitcoin is the “Most Honest Market,” Peter Thiel says the New Highs Mean Central Banks Are Going Bankrupt 17 h El Salvador Central Bank President Only Sees 'Upside Risks' with Bitcoin, Expects Volatility to Help Economy Expand 21 h Chainalysis is Seeking Other Cryptocurrencies for Investment After Adding Bitcoin to Its Balance Sheet
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 10.80% Compound Coin / USD COMPUSD $ 0.00
$0.0010.80% Volume 193 Change $0.00 Open $0.00 Circulating 53.73 b Market Cap 3.36 K 2 w Compound Bug Puts 490k COMP at Risk to Become the Largest Fund Loss in a Smart Contract Incident 2 w Grayscale Makes Solana (SOL) the 4th Biggest Holding in its Digital Large Cap Fund, Adds Uniswap (UNI) too 3 w Bug in DeFi Protocol Compound Mistakenly Sends $82 Million In COMP Rewards to Users MKR 3.30% Maker / USD MKRUSD $ 2,615.10
$86.303.30% Volume 138.57 m Change $86.30 Open $2,615.10 Circulating 991.33 K Market Cap 2.59 b 1 w MakerDAO Founder Proposes Yield Farming and Issuing More Tokens to Help it “Grow to the Next Level” 2 w Grayscale Makes Solana (SOL) the 4th Biggest Holding in its Digital Large Cap Fund, Adds Uniswap (UNI) too 2 w Third Largest Bank of France Submits a Proposal on MakerDao for $20 Million Security Tokens Refinancing
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.