The crypto space is tanking as of late. Bitcoin has fallen by about ten percent in the past two days, while Ethereum, Ripple, Cardano and Litecoin have all taken dips of anywhere between five and ten percent. However, not every asset is down in the doldrums at the time of writing. Some, such as Polkadot, have retained their high prices and appear poised for more gains in the coming weeks.
Polkadot Continues to Thrive Like No Other Coin
Polkadot is the provider of what’s known as the dot token, a currency that has risen by more than 450 percent in just the last five months alone. The asset is part of a long list of decentralized finance (Defi) tokens that have made their way into the crypto space over the past two years, and the Defi industry continues to grow like there’s no tomorrow.
In January of 2020, for example, the space was valued at just over $1 billion. Today, that value has grown to more than $20 billion. The arena’s big claim to fame is that it can allegedly revamp a lot of traditional financial tools – such as loans and insurance – to make them easier and more accessible to those who really need them.
Interestingly, Polkadot has been on a constant high, rising through the months of both December and January. The currency’s rally continues – even as larger, more mainstream tokens and assets such as bitcoin fall from their recent top positions and slink further into oblivion.
Many analysts are taking this as a sign that Polkadot is going to potentially compete with Ethereum. The ETH network is where many of today’s Defi tokens stem, the dot token included. Luis Cuende – cofounder of the decentralized app company Aragon – explained in a recent interview:
While competitors to Ethereum are making strides and benefitting from the ongoing market rally, I think it’s very unlikely that these competitors will overcome the network effects that Ethereum has built. However, until Ethereum 2.0 is fully functional, Polkadot, cosmos and near are well positioned to capture a meaningful market share.
Some Assets Are Starting to Attract Professional Traders
In addition, the currency – like many Defi tokens at press time – appear to be garnering further attention from institutional players. Seamus Donoghue – vice president of business development at Metaco in Switzerland – mentions in a statement:
Although bitcoin is viewed as a macro inflation asset, Ethereum has the potential to be the foundation for a new decentralized capital market infrastructure. New protocols such as Cardano and Polkadot are also vying for the foundational infrastructure play, but whatever the merits of their protocols need to overcome the significant developer mindshare and network advantage Ethereum currently has… It is early days, but the entire sector is looking cheap compared to bitcoin.
At the time of writing, one unit of Polkadot is trading for a little over $16.
XRP floated above its press time support but needed to retake additional resistance levels to overturn its bearish market. ATOM reflected a consolidated market as the price moved within a fixed channel while Elrond traded within an ascending channel after a bounce back from the $100-mark.
XRP was still at the nascent stage of a recovery as the bulls barely held on to $0.46 level after flipping it to support. Weekly gains of over 10% highlighted the bounce back from $0.40 support as XRP rose steadily on the 4-hour time frame. Nevertheless, several challenges awaited the bulls moving forward. The first was to overcome bearish sentiment in the market set by the 200-SMA (green) crossing above the 50-SMA (blue).
Short-medium term challenges were presented by the overhead resistance levels $0.5 and $0.55. However, the ADX rested around the 15 mark and indicated a weak trend in the XRP market. The MACD line moved alongside the signal line as equilibrium was maintained between each side. Considering the neutrality set by the indicators, the bulls might have to sustain a period of consolidation before a northbound move.
The Bollinger Bands on Cosmos started to converge as volatility looked to escape the Cosmos market. Short-bodied candlesticks on the 4-hour charts showed that the buyers and sellers were not in major disagreement with regard to the price. The RSI pointed lower from the 50-mark.
If the bears take control over the coming sessions, a fall towards $16.45 support could present some buying opportunities for traders at a discounted price. A psychological boost could also stem from a breach above the overhead resistance at $21.45.
Gains over the past week amounted to over 12% as Elrond bounced back strongly from the $100-mark. As the price formed higher highs and higher lows, an ascending channel appeared on the 4-h0ur timeframe. The indicators tilted in the favor of the bulls at press time but a break outside the channel seemed unlikely.
The MACD closed in on a bullish crossover, while the red bars on the histogram moved towards the equilibrium point. The RSI was neutral-bullish as the index moved flat from above the 50-level. A move above the upper trendline over the long run would present an upside at $208. Conversely, a southbound move from the lower trendline could see EGLD move towards the $100 level once again.
Chinese Crypto Purchases Signal Asian Corporate Attention
The Chinese company Meitu announced on Mar. 7 the purchase of 5,000 ETH and more than 379 BTC. The purchase, on Mar. 5, is part of an investment plan using cash reserves. Meitu’s business focus is in image and video processing as well as social media. In the announcement, the company states that its Board … Continued
The Chinese technology company Meitu purchased millions of dollars of BTC and ETH from its corporate reserves.
The Chinese company Meitu announced on Mar. 7 the purchase of 5,000 ETH and more than 379 BTC. The purchase, on Mar. 5, is part of an investment plan using cash reserves. Meitu’s business focus is in image and video processing as well as social media.
In the announcement, the company states that its Board sees blockchain as being in a state “analogous to the mobile internet industry circa 2005.” Moreover, Meitu sees its purchases in differing lights.
Moving into Blockchain
Meitu sees the Ethereum chain as a natural place for its own exploration into blockchain. The company might use it for Gas or for investing into blockchain-based projects that take ETH.
Bitcoin as an Asset
Meitu made the Bitcoin purchase primarily for asset diversification. First and foremost, Meitu sees Bitcoin as a superior store of value. The company’s analysis compared BTC to gold, precious stones and real estate.
Observers quickly noticed the fact that a Chinese corporation made the purchase.
The focus on U.S. companies buying crypto from corporate reserves is not a surprise. As just one example, Bitcoin bull Michael Saylor, the CEO of MicroStrategy, has stayed in the spotlight since the company’s initial purchase of BTC in August 2020.
MicroStrategy literally wrote the book on corporate reserves purchases of Bitcoin, at least for the American market. On Feb. 5-6, the company held a remote conference in which it explained the legal and accounting measures required for American corporations to follow in the process. The company also made available for free a download of its internal playbook used when making such purchases.
The Meitu purchase is an example of how widespread this cryptocurrency bull run has become. Asian corporate purchasers are now emulating their American counterparts.
Closer to the U.S., though, investment companies face pressure of a different kind. Canadian investment firms are ahead with Exchange Traded Funds (ETFs). The Purpose Bitcoin Fund, which is traded on the Toronto Stock Exchange, is the first Bitcoin ETF in North America.
Not to be outdone by the Bitcoin crowd, the world’s first Ethereum ETF has been given preliminary approval for trading on the Toronto exchange as well.
Given the growing competition for increasingly scarce BTC at hand, MicroStrategy might need to write the book on how to find it in the first place.
All the information contained on our website is published in good faith and for general information purposes only. Any action the reader takes upon the information found on our website is strictly at their own risk.
James Hydzik is a finance and technology writer and editor based in Kyiv, Ukraine. He is especially interested in the development of regulation in the face of increasingly rapid technological change. He previously covered the CEE region for Financial Times banking and FDI magazines. An ardent believer in gut renovating eastern Europe one flat at a time, he currently holds more home renovation gear than crypto.
Aave is a decentralized, open-source, non-custodial liquidity protocol that enables users to earn interest on cryptocurrency deposits, as well as borrow assets through smart contracts.
Aave is interesting (pardon the pun) because interest compounds immediately, rather than monthly or yearly. Returns are reflected by an increase in the number of AAVE tokens held by the lending party.
Apart from helping to generate earnings, the protocol also offers flash loans. These are trustless, uncollateralized loans where borrowing and repayment occur in the same transaction.
Assets on Aave as of 3/7/21 (source: aave homepage)
The following article explores Aave’s history, services, tokenomics, security, how the protocol works, and what users should be wary of when using the Aave platform.
How Does Aave Work?
The Aave protocol mints ERC-20 compliant tokens in a 1:1 ratio to the assets supplied by lenders. These tokens are known as aTokens and are interest-bearing in nature. These tokens are minted upon deposit and burned when redeemed.
These aTokens, such as aDai, are pegged at a ratio of 1:1 to the value of the underlying asset – that is Dai in the case of aDai.
The lending-borrowing mechanism of the Aave lending pool dictates that lenders will send their tokens to an Ethereum blockchain smart contract in exchange for these aTokens — assets that can be redeemed for the deposited token plus interest.
atokens on Aave
Borrowers withdraw funds from the Aave liquidity pool by depositing the required collateral and, also, receive interest-bearing aTokens to represent the equivalent amount of the underlying asset.
Each liquidity pool, the liquidity market in the protocol where lenders deposit and borrowers withdraw from, has a predetermined loan-to-value ratio that determines how much the borrower can withdraw relative to their collateral. If the borrower’s position goes below the threshold LTV level, they face the risk of liquidation of their assets.
Humble Beginnings as ETHLend
Aave was founded in May 2017 by Stani Kulechov as a decentralized peer-to-peer lending platform under the name ETHLend to create a transparent and open infrastructure for decentralized finance. ETHLend raised 16.5 million US dollars in its Initial Coin Offering (ICO) on November 25, 2017.
ETHLend widened its bouquet of offerings and rebranded to Aave by September 2018. The Aave protocol was formally launched in January 2020, switching to the liquidity pool model from a Microstaking model.
To add context to this evolution from a Microstaking model to a Liquidity Pool model, Microstaking was where everyone using the ETHLend platform. Whether one is applying for a loan, funding a loan, or creating a loan offer, they had to purchase a ticket to obtain the rights to use the application, and that ticket had to be paid in the platform’s native token LEND. The ticket was previously a small amount pegged to USD, and the total number of LEND needed varied based on the token’s value.
In the liquidity pool model, Lenders deposit funds to liquidity pools. Thus creating what’s known as a liquidity market, and borrowers can withdraw funds from the liquidity pools by providing collateral. In case the borrowers become undercollateralized, they face liquidation.
The Aave protocol is designed to help people lend and borrow cryptocurrency assets. Operating under a liquidity pool model, Aave allows lenders to deposit their digital assets into liquidity pools to a smart contract on the Ethereum blockchain. In exchange, they receive aTokens — assets that can be redeemed for the deposited token plus interest.
Borrowers can take out a loan by putting their cryptocurrency as collateral. The liquidity protocol of Aave, as per the latest available numbers, is more than 4.73 billion US dollars strong.
Aave’s Flash loans are a type of uncollateralized loan option, which is a unique feature even for the DeFi space. The Flash Loan product is primarily utilized by speculators seeking to take advantage of quick arbitrage opportunities.
Borrowers can instantly borrow cryptocurrency for a matter of seconds; they must return the borrowed amount to the pool within one transaction block. If they fail to return the borrowed amount within the same transaction block, the entire transaction reverses and undo all actions executed until that point.
Flash loans encourage a wide range of investment strategies that typically aren’t possible in such a short window of time. If used properly, a user could profit through arbitrage, collateral swapping, or self-liquidation.
Aave allows borrowers to switch between fixed and floating rates, which is a fairly unique feature in DeFi. Interest rates in any DeFi lending and borrowing protocol are usually volatile, and this feature offers an alternative by providing an avenue of fixed stability.
For example, if you’re borrowing money on Aave and expect interest rates to rise, you can switch your loan to a fixed rate to lock in your borrowing costs for the future. In contrast, if you expect rates to decrease, you can go back to floating to reduce your borrowing costs.
Aave Bug Bounty Campaign
Aave offers a bug bounty for cryptocurrency-savvy users. By submitting a bug to the Aave protocol, you can earn a reward of up to $250,000.
The maximum supply of the AAVE token is 16 million, and the current circulating supply is a little above 12.4 million AAVE tokens.
Initially, AAVE had 1.3 billion tokens in circulation. But in a July 2020 token swap, the protocol swapped the existing tokens for newly minted AAVE coins at a 1:100 ratio, resulting in the current 16 million supply. Three million of these tokens were kept in reserve allocated to the development fund for the core team.
Aave’s price has been fairly volatile, with an all-time high of $559.12 on February 10, 2021. The lowest price was $25.97 on November 5th, 2020.
Aave stores funds on a non-custodial smart contract on the Ethereum blockchain. As a non-custodial project, users maintain full control of their wallets.
Aave governance token holders can stake their tokens in the safety module, which acts as a sort of decentralized insurance fund designed to ensure the protocol against any shortfall events such as contract exploits. In the module, the stakers can risk up to 30% of the funds they lock in the module and earn a fixed yield of 4.66%.
The safety module has garnered $375 million in deposits, which is arguably the largest decentralized insurance fund of its kind.
Final Thoughts: Why is Aave Important?
Aave is a DeFi protocol built on strong fundamentals and has forced other competitors in the DeFi space to bolster their value propositions to stay competitive. Features such as Flash loans and Rate switching offer a distinct utility to many of its users.
Aave emerged as one of the fastest-growing projects in the Summer 2020 DeFi craze. At the beginning of July 2020, the total value locked in the protocol was just above $115 million US dollars. In less than a year, on February 13, 2021, the protocol crossed the mark of 6 billion US dollars. The project currently allows borrowing and lending in 20 cryptocurrencies.
Aave is important because it shows how ripe the DeFi space is for disruption with new innovative features and how much room there is to grow.