Author: Kolten
Translated by: Tim, PANews
In the DeFi space, network effects determine success or failure, and no one does it better than Aave. With five years of market accumulation, a user base of millions, and the deepest liquidity in the DeFi sector, projects built on Aave will gain unparalleled scale effects and network effects, which are core advantages that other platforms cannot replicate.
Partners can instantly access infrastructure, user bases, and liquidity, which often takes years to build independently. This is what we refer to as the 'AAVE effect'.
Some data
Source: DeFiLlama
Aave is currently the largest protocol in the DeFi space, more accurately, the largest protocol in history. Its TVL accounts for 21% of the entire DeFi market and 51% of the lending market, with net deposits exceeding $49 billion. While these figures are impressive enough, the real core lies in Aave's market penetration. For example:
After Ethena's sUSDe scaled its business on Aave, the deposit amount surged from $2 million to $1.1 billion within just two months.
Within just a few weeks after Pendle was added to Aave, users deposited PT tokens worth $1 billion. This number has now doubled to $2 billion, making Aave the largest supply market for Pendle tokens.
KelpDAO's TVL skyrocketed from 65,000 ETH to 255,000 ETH within just four months after rsETH was included in the Aave protocol, achieving a fourfold increase.
There are countless examples. Aave holds nearly 50% of the active stablecoin market and is the primary circulation hub for Bitcoin in DeFi. Notably, Aave has achieved nearly a billion dollars in TVL across four independent blockchain networks, a rare depth of layout.
How is the Aave effect formed?
Anyone can incentivize deposits through token rewards and yield farming programs, expanding the supply side scale. This is why, on the surface, TVL is not always a meaningful metric. In fact, attracting funding supply is currently seen as a solvable problem, but creating asset utilization demand is much more difficult unless you are a platform like Aave.
Source: https://tokenterminal.com/explorer/markets/lending/metrics/active-loans
The active borrowing volume on the Aave platform exceeds $18 billion, far surpassing the total of all its competitors combined. The protocol is not simply a high-level staking contract; when users deposit assets into Aave, those assets are either borrowed out or used as collateral to borrow other assets. In other words, funds are never idle.
This creates a positive feedback loop that continuously reinforces demand. When an asset launches on the Aave market, or when a development team builds on it, they can all benefit from this demand. Eventually, everyone will benefit from the actual economic activities generated by a large active user base.
This is crucial for teams developing based on Aave. The protocol has been tested over five years, traversing multiple market cycles, consistently earning the trust of developers and users. As a major platform for billions of dollars in funds, it far exceeds many emerging protocols today.
Source: Block Analitica
Moreover, developers on the Aave platform are not limited by 'scale'. Compared to other protocols, the deposit and borrowing amounts that Aave can support can be tens of millions of dollars higher. This allows financial technology applications of any scale (retail user level, institutional level, or both) to develop robustly on this platform.
Outlook
When Aave V4 goes live, the core driving engine of the Aave effect will continue to evolve. Its new architecture will provide builders and users with unprecedented asset access channels and unique lending strategy solutions. (Related reading: (In-depth Analysis of Aave V4: How the Lending Leader Builds Its Moat Again?))
All the factors that make Aave valuable to DeFi today will become even more significant in the future.
