Aave v3 loan volume soars to record levels, DeFi spring

Aave v3 Loan Volume Skyrockets to All-Time Highs, Marking a DeFi Spring

Decentralized Finance (DeFi) is shaking off its sluggish state.

According to data from DeFiLlama, DEX has had its best week in terms of trading volume since March, with the total locked value (TVL) reaching its highest level since June. The TVL of the entire DeFi ecosystem has risen from $35.883 billion on October 12th to the current $46.236 billion, an increase of $10.353 billion.

In the past 30 days, the TVL of the top 10 DeFi platforms has grown by over 15%, with six protocols experiencing growth of over 25%.

According to IntoTheBlock, Aave v3 has reached a new all-time high in daily borrowed assets.

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Due to speculations about the approval of a physically-backed Bitcoin ETF in January next year, as well as expectations of a better (or at least less pessimistic) macro environment, the increasing risk appetite among traders is driving DeFi activity. Lucas Outumuro, an analyst at IntoTheBlock, states in a research report, “With people eager to speculate, the demand for leverage has been increasing.”

Aave breaks borrowing record

According to IntoTheBlock data, on November 15th, Aave v3 on Ethereum borrowed a record $182 million in assets. The repayment on that day was $150 million, resulting in a net inflow of $31 million. Nonetheless, the overall trend indicates a continued growth in demand for collateralized loans.

Higher yields and TVL

The demand for borrowing is driving up yields. This week, the lending rate for USDC on Aave reached 9.2%, while the borrowing rate on the protocol reached 7.6%, both the highest levels since August.

Higher yields are attracting more liquidity, thereby increasing the TVL. According to DeFiLlama data, assets deposited into smart contracts have been growing moderately since last month, surpassing $47 billion for the first time since May.

DeFi trading activity is also on the rise. According to data from DeFi Llama, last week DEX trading volume reached $244 billion, the highest level since the week of March 18th. October was the best month for DEX performance since June, with a trading volume of $61.4 billion.

Impressive Performance of DeFi Tokens

As traders increase their risk appetite once again, the prices of DeFi tokens are on the rise. According to Coingecko, the market capitalization of the DeFi industry has reached $65 billion, the highest level since May.

In addition, out of the top 10 best-performing tokens in the past day, 5 of them are DeFi protocols, including dYdX (ethDYDX), LianGuaincakeSwap (CAKE), Joe (JOE), THORChain (RUNE), and Lido DAO.

Looking at the 7-day trend, 4 out of the top 10 tokens are also DeFi tokens, with 0x Protocol (ZRX) and Yearn.finance (YFI) joining the ranks of dYdX (ethDYDX) and THORChain (RUNE) as double-digit gainers in the DeFi space.

The funding pool for DeFi developers has also expanded. As previously reported by LianGuai, Arbitrum plans to allocate around $44 million from its treasury for short-term incentives to various projects, hoping to boost the development of the network. A second proposal to distribute $25 million in grants at current market prices is also about to be approved. Polygon also announced its own $78 million funding program last week.

A Superficial Bull Market?

In response to the recent optimism, some community users are cheering, saying “the bull is back, come back quickly.” However, David Hoffman, co-founder of Bankless, believes that if this is indeed a bull market, it is very different from previous ones.

In his article, Hoffman suggests that the anticipation of spot ETFs is driving the bullish sentiment. The approval of a Bitcoin spot ETF could happen at any time, and a spot Ethereum ETF is not far behind. This is the moment the industry has been waiting for over a decade, where an externally stimulated bull market may occur due to the approval of these spot ETFs, but lacks internal catalysts.

Hoffman argues that, firstly, there are no new reasons for people to enter the crypto space in a native crypto way, and the industry has not unlocked any new primitives. Retail investors do not care whether Polygon or Solana have lower-cost block space and improved execution environments. Secondly, no new applications have been constructed yet.

The price increase of assets itself is a form of marketing, and the reopening of the casino and people making money for the first time in two years are driving forces for re-entering the market. Hoffman warns that without new applications or primitives for people to use, similar to what happened in 2013, 2017, and 2021, this rebound will be short-lived, and a true bull market requires an internal catalyst.

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