DeFi Update | Week #11, 2021
Despite several hacks and exploits, the biggest story in the world of DeFi is the one of the multichain paradigm. To provide faster and cheaper services, DeFi projects are looking at alternatives to Ethereum. Will Aave do the same?
This was a hectic week for the DeFi sector. Hacks and controversies were all over the place. There was the $170K exploit of Iron Finance, the compromised DNS for Cream Finance and PancakeSwap, as well as the Alameda – Reef Finance story.
Still, the dominant narrative in the sector remains the emergence of the multichain paradigm. While Ethereum costs continue to be high, projects are exploring alternatives. More and more established names are deploying on Ethereum rivals. Most recently, bZx has announced its appearance on Binance Smart Chain, followed by 0x and Matcha. SushiSwap is another project expanding its footprint, and will be entering the Avalanche ecosystem.
Notably, Aave also alluded to a possible expansion outside of Ethereum. The project recently launched its new product for LP token holders, enabling users to utilize Uniswap and Balancer LP tokens as collateral.
Users trading or lending through Aave can keep an eye on their activity through the DappRadar Portfolio Tracker. DappRadar offers a one-stop location for all data about DeFi and NFTs on both the Ethereum blockchain and Binance Smart Chain.
Aave’s footprint on DeFi
Aave has a long history in the DeFi sector, and has been known for pushing the boundaries with its products. In 2017 Stani Kulechov launched ETHLend and raised $16.2M in an ICO. In 2018 the Aave brand appeared, and ETHLend became part of the broader product suite.
The project survived the crypto winter, and expanded its feature set. In January of 2020, when DeFi summer was still far out, Aave launched the v1 of its protocol. Among a number of exciting features were the flash loans. While Aave is not the only protocol to offer this functionality, it seems to often be associated with the brand.
Source: Aave Watch
Flash loans have somewhat of a mixed reputation, as they have been often used for exploiting protocols. Nevertheless, the instrument became hugely popular with the rise of DeFi, and by the end of September 2020, Aave had lent out almost $500M through it.
During the DeFi summer Aave also followed suit and started down the path of greater decentralization and introduced the Aave governance token.
Impressively, Aave continued to evolve, and in December of the same year deployed a V2 version of its protocol, introducing new features including native credit delegation. The protocol’s growth path attracted new ideas including the proposal to add real world assets utilizing Centrifuge.
The appearance of Aavegotchi demonstrated the fact that Aave can be the center of a vibrant ecosystem that spreads to sectors beyond DeFi. Aave has found success, and with over $5B TVL, it is one of the top 5 projects by TVL according to DappRadar.
It will be interesting to see if and when Aave decides to expand outside of Ethereum, which blockchain(s) will be chosen. aTokens have already found their way onto Polygon. However, an argument could be made that Polygon, formerly Matic Network, is still a part of the Ethereum ecosystem.
New blockchains may unlock new opportunities for Aave, while the emergence of Aave on other chains may help the development of these Ethereum rival ecosystems.
The information provided here is for informational purposes only. This is not investment advice and should not be treated as such. Strategic Round Capital and/or the author of this article holds a position in ETH, AAVE.