The observation mentioned in the diagram — Aave's capital utilization rate on XPL has increased by about 20% compared to Ethereum — is data that is enough to shock all deep participants in DeFi. This is not just an optimization of a performance metric; it hints at a deeper 'capital efficiency revolution' happening on XPL.
To understand this revolution, we first need to analyze what the core factors limiting capital efficiency are in the traditional Ethereum DeFi ecosystem.
On the Ethereum mainnet, the main collateral forces for lending protocols like Aave and Compound are ETH, wETH, and various mainstream ERC-20 tokens. These assets share a common characteristic: high price correlation. When the cryptocurrency market encounters a black swan event and experiences extreme downturns, ETH and most altcoins plummet simultaneously. This triggers a chain of liquidations, as the speed at which collateral value decreases may far exceed the value of the loan debt. To cope with this systemic risk, protocols have to set relatively conservative collateral ratios (for example, 150% or even higher), which leads to a significant amount of capital being in a state of 'idle' or 'inefficient' during normal times.
The introduction of Bitcoin has changed everything.
Bitcoin plays the role of 'digital gold' in the cryptocurrency asset space, its price volatility is generally lower than that of most altcoins on a macro level, and more importantly, it has a relatively low correlation with DeFi's endogenous assets. When BTC enters the XPL Aave market as core collateral, it brings a whole new dimension of risk:
1. Higher quality core collateral: The protocol can design a more aggressive collateral ratio based on BTC's more stable value storage properties. For example, for BTC, the collateral ratio could be set at 120%, while for more volatile altcoins, it could be maintained at 150% or higher. This means that with the same BTC collateral value, users can borrow more funds, thereby increasing the overall capital utilization in the market.
2. Risk hedging and portfolio optimization: A user can choose to collateralize BTC and borrow ETH or some DeFi governance token. This essentially builds a risk-hedged portfolio of 'going long on BTC and shorting altcoins.' Such complex financial strategies previously required cross-platform and cross-chain operations, which were highly difficult and risky. However, on XPL, because BTC and ETH ecological assets naturally coexist in a seamless environment, these operations become simple. More diversified asset combinations lead to more refined risk management and capital allocation, thereby optimizing the efficiency of the fund pool overall.
3. Attracting 'awakened' conservative capital: The enhanced 20% capital utilization may likely come not from existing DeFi players trading more frequently, but from a large batch of previously dormant Bitcoin conservative capital being activated and flooding into the market, resulting in 'incremental efficiency.' The owners of this capital have a lower risk appetite, and their lending behavior may be more prudent, providing higher quality liquidity that further stabilizes the fund pool.
Therefore, the changes in Aave data on XPL reveal a paradigm shift: the next stage of growth in DeFi will no longer rely on inventing more complex economic models but rather on introducing higher quality and more differentiated risk-return characteristics of underlying assets.
Bitcoin is the highest quality and largest new asset class that this era can offer. XPL has exclusively and efficiently completed this introduction through its Bitcoin bridge. It has not only brought more TVL to Aave but also provided an unprecedented and solid 'golden foundation' for the entire XPL ecosystem's DeFi Lego. On this foundation, we can build higher, more stable, and more efficient financial skyscrapers. This revolution in capital efficiency has just begun.$XPL
