27 Jan

Demand for flash loans and staking is increasing

Aave reaches a peak of $288: demand for flash loans and staking is increasing

Aave’s price has reached a new all-time high, thanks to a bull run that has lasted for weeks

The price of Aave (AAVE) has continued to rise for weeks: tonight the DeFi token reached a new all-time high of $288.90. The recent rally in decentralized finance is among the main driving forces behind AAVE’s price increase.

At the beginning of 2021, AAVE’s price was around $83: the recent Bitcoin Evolution rally has strengthened the total value locked in the protocol, increased buying volumes on exchanges and promoted the development of the lending platform.

Aave’s LTV reaches new highs

Data from DeFi Pulse shows that Aave’s TVL (Total Value Locked) has significantly increased from $2.03 billion on 1 January, a time when the price of Bitcoin (BTC) and Ether (ETH) grew parabolically.
Total value locked on AAVE. Source: DeFi Pulse

Aave’s LTV currently sits at an all-time high of $3.83 billion, making it the second largest DeFi platform by value locked, behind only Maker (MKR). The constant addition of new tokens to the lending protocol increases the likelihood that its TVL will continue to grow.

AAVE’s trading volume has also significantly increased since the beginning of the year: from $200 million on 3 January to $928 million on 16 January.

As AAVE’s price reached an all-time high, daily trading volume broke a record of $1.06 billion. This increase in volume is partly due to investors buying the token for staking: 26.8% of AAVE’s total supply is currently staked, with an APY of 6.1%.

Flash loans attract investors

Another reason for AAVE’s recent appreciation is the strong interest in its flash loans.

This feature allows cryptocurrency holders to collateralize their investment portfolios, so as to finance the purchase of new crypto. Such loans also allow investors to capitalise on the value of their tokens, without any need to sell them or create taxable events.

Since the launch of flash loans less than 12 months ago, more than $1.7 billion has been issued, and these figures could significantly increase as the crypto bull market progresses.

As can be seen in the chart above, the most popular token for flash loans is the DAI stablecoin, followed by USDC and ETH. Messari’s data shows that Aave issued $25 million worth of loans in the first half of 2020, $500 million in Q3 and almost a billion in Q4, including $450 million in December alone.

The expansion of the flash loan concept could attract many new users to Aave, especially since the platform can be used for arbitrage opportunities between DEX, collateral swaps, self-liquidation and many other applications in the DeFi sector.