Leader in the Decentralization Lending Field: The Development History and Future Outlook of Aave

Aave is a multi-chain lending protocol whose core business lies in enabling peer-to-peer contract lending of crypto assets through a dynamic interest rate model and liquidity pools. Currently, its total value locked ranks third among DeFi projects, particularly leading in the lending category. Aave's parent company is gradually expanding its business into new areas, including cross-chain lending, stablecoins, open social protocols, and institutional lending platforms.

The total supply of AAVE tokens is 16 million, of which 13 million are allocated to token holders, and the remaining 3 million are injected into the reserves of the ecosystem. Currently, the circulating supply of AAVE tokens in the market is approximately 14.8 million.

With the continuous expansion and maturation of Aave's business, both AAVE's TVL and price have increased against the backdrop of a market recovery in 2024. Aave announced the upgrade plan for version 4 in May, focusing on further enhancing liquidity and asset utilization.

The Aave V3 version has basically replaced the V2 version, and the gradual stabilization of its business model and user base has made Aave far ahead of other lending protocols in terms of TVL, trading volume, and the number of supported chains.

Aave has encountered some challenges in expanding its business. Currently, its main revenue still relies on traditional lending operations. The stablecoin GHO recently regained its peg after experiencing a period of decoupling. The TVL of the institutional lending platform Aave Arc has remained at a low level after a significant drop.

For the future development of Aave, it is recommended to further optimize its cross-chain lending solutions, strengthen its stablecoin business and deeply integrate it with the Aave platform, integrate Aave's DeFi capabilities into emerging businesses such as social platforms, and consolidate the currently relatively independent business segments into a comprehensive ecosystem.

The Development History of Aave

In May 2017, Stani Kulechov founded the ETHLend project. Initially, ETHLend faced severe liquidity challenges during its operation. By the end of 2018, ETHLend underwent a strategic transformation, shifting from a peer-to-peer model to a peer-to-contract model, introducing a liquidity pool model, and officially rebranding as Aave. This transformation marked the official launch of Aave in 2020.

In November 2023, Aave announced its rebranding to Avara. Avara has gradually launched new businesses including the stablecoin GHO, the social network protocol Lens, and the institutional lending platform Aave Arc, and has begun strategic deployments in various fields such as cryptocurrency wallets and gaming.

The current version of Aave V3 has been stably put into use, and its services have expanded to 12 different blockchains. At the same time, Aave is further attempting to upgrade the lending platform, announcing the upgrade proposal for version V4 in May 2024.

According to data, as of May 15, 2024, AAVE ranks third in the DeFi space in terms of total locked value, reaching $1.0694 billion.

Aave's Core Business Model

Aave's core business is Decentralization lending, mainly realized through the following mechanisms:

1. Dynamic interest rate model: Adjusts borrowing rates dynamically based on the utilization rate of the liquidity pool to balance supply and demand.

2. Liquidity Fund Pool: Users can deposit assets into the fund pool to earn interest, while borrowers can borrow assets from the fund pool.

3. Over-collateralization: Borrowers need to provide collateral that exceeds the loan amount to reduce system risk.

4. Liquidation Mechanism: When the value of the collateral falls to a certain level, liquidation is triggered to protect the safety of depositors' funds.

5. Flash Loans: Allow users to complete unsecured lending within a block, primarily used for arbitrage and other scenarios.

6. Cross-chain lending: Achieve asset lending between different blockchains through the Portal function.

In addition, Aave has also launched innovative services such as the stablecoin GHO and the social protocol Lens, attempting to build a more comprehensive DeFi ecosystem.

Market Position of Aave

Aave is a leader in the DeFi lending space:

1. TVL Scale: As of mid-May 2024, Aave's TVL reached $1.025 billion, ranking first among lending protocols.

2. Multi-chain layout: Already launched on 12 blockchains, with coverage far exceeding competitors.

3. Market Share: It is the largest lending protocol on major public chains such as Ethereum, Arbitrum, and Avalanche.

4. User Base: Aave V3 has over 14,000 active users, far exceeding other lending platforms.

5. Trading Volume: In April 2024, the trading volume reached $2.6588 billion, with a month-on-month growth of 16.9%, leading the growth rate.

6. Asset Utilization Rate: Through innovative mechanisms such as efficient models, the asset utilization rate is superior among similar protocols.

Challenges Faced by Aave

1. Cross-chain lending competition: Protocols like Radiant are gaining an edge in the cross-chain lending space, and the late launch of Aave V4 may affect its competitiveness.

2. Innovation Pressure: In the face of protocols offering innovative solutions such as flash loans and cross-chain lending, Aave needs to continue innovating to maintain its leading position.

3. Development of GHO Stablecoin: GHO has previously experienced decoupling, and the integration with Aave's lending feature still needs to be strengthened.

4. Business Diversification: Currently, revenue still mainly relies on traditional lending operations, and new businesses such as Aave Arc have not developed as expected.

Suggestions for the Future Development of Aave

1. Optimize cross-chain lending solutions: Accelerate the launch of version V4 and improve the efficiency of cross-chain asset utilization.

2. Deepen the integration of GHO with the Aave platform: Enhance the application of GHO in lending, cross-chain, and other scenarios.

3. Build Aave Network: Promote the construction of the network for the V4 version design, enhancing the connectivity of the ecosystem.

4. Expand non-lending business: Strengthen the integration of social protocols like Lens with DeFi capabilities, and explore more innovative application scenarios.

5. Integrating the ecosystem: Deeply integrating lending, stablecoins, social, and other business sectors to create a comprehensive DeFi ecosystem.

6. Continuous technological innovation: Maintain technological leadership in areas such as smart contract security and asset utilization.

7. Strengthen institutional business: Optimize Aave Arc to attract more institutional users to participate in the DeFi market.

Overall, Aave, as a leader in the DeFi lending space, still has broad development prospects in the future. Through continuous innovation, improving the ecosystem, and optimizing core business, Aave is expected to maintain its leading position in the increasingly fierce competition and promote the development of the entire DeFi industry.