Present from 2017 under the name of Ethlend, Aave reflects the transformation of the defi. Indeed, five years after the 2020 DEFI Summer during which decentralized finance came out of its embryonic phase, this new economic sector has entered a new phase.
In short
- Aave, launched in 2017, symbolizes the maturity of the DEFI with strong leadership.
- After crises, the DEFI is centralized around secure and regulated projects.
- Ethereum and its Layers 2 dominate the DEFI, concentrating the majority of capital.
Until 2023, we experienced the appearance of a very large number of applications on an increasing quantity of blockchains. But we are now very far from this situation. Decentralized finance is now dominated by essential projects. And some of them, present from the start of the DEFI, now have partnerships with traditional finance.
Among them, Aave is therefore the most obvious symbol of this success of the DEFI OG with its undeniable place as a leader.
The paradoxical evolution of decentralized finance
In five years, the DEFI has experienced a real mutation. The summer of 2020, called Defi Summer, was the founding moment of this sector. Aave, Uniswap, Makedao, Dydx and other projects proposed liquidity mining or Airdrops to reward their first users. We then witness a virtuous circle. The communities are formed and the TVL (Total Value Locked) is gradually increasing. This first success will attract new projects and new blockchains that want to build similar ecosystems.
The concept of decentralization is then synonymous with an absence of regulation and a generalized dispersion of this new finance.
This dispersion did not only have positive effects. Hacks, scams, bankruptcies with the fall of the market from 2022 have cooled many investors and farmers. This has led to favor the best known applications, concerned about security and more and more in accordance with financial regulations.
The rise in the Real World Assets (RWA) sector has completed this development. Indeed, these investments cannot be done without legal framework and only a few projects (Makerdao, Aave, etc.) are able to meet these requirements.
Aave's leadership
Announced since 2017 under the name of Ethlend before taking the name of Aave in 2020, this application of Lending gradually imposed itself as the dominant project of the DEFI. At first deployed on Ethereum, Aave has always highlighted security and has developed with caution on other networks. Apart from avalanche, Aave is now mainly on Ethereum and its Layers 2.
However, faithful to its spirit of transparency (aave meaning “ghost” in Finnish), Aave now offers its infrastructure to other projects in the form of instances. Ethena, who created a stablecoin linked to the dollar, has thus developed her body on Aave for investors. But it is above all the World Liberty Finance project of Eric Trump which will reveal the real reason for this functionality. It will allow financial institutions to use this architecture to create loan markets for increasingly tokenized assets.
Aave has thus exceeded its record by reaching $ 30 billion in TVL and confirms months after month its place as leader of the defi. The Token Aave takes advantage of this place by being, just after the Uniswap Uni, the second token of the Protocols DEFI in capitalization. Long used within the stoking protocol to create a warranty reserve in exchange for a token distribution, the Aave will change their economic model since stakers will receive part of the income from the protocol.
Ethereum ecosystem, parent company
Despite the development of many other blockchains and uncertainties on the force of ETH cryptocurrency, Ethereum remains, either on Layer 1 or on Layers 2, the reference network of decentralized finance. Of the ten protocols DEFI which have the most TVL according to the Defilama site, eight come from the Ethereum ecosystem. UNISWAP, AAVE, MAKERDAO, COMPOUN, CURVE are all OG of Ethereum, present almost since the start of decentralized finance. Among the most important applications, Lido, Eigenlayer, Ether.fi and Ethena arrived later.
Ethereum concentrates more than 50% of TVL on DEFI applications and more than 50% on Stablecoins. Institutional investors remain attached to this blockchain which has more than proven its safety. If for the Stablecoins Tron succeeds in competing with Ethereum by attracting 30% of Stablecoins, in terms of Tron and Solana applications are far behind with around 7% of the global TVL of the DEFI for each of them.
In fact, we can see that even by deviating from Ethereum, the value at stake in decentralized finance is massively concentrated on some applications. Token Terminal has thus shown that the capital present in the DEFI is mainly concentrated on 25 key applicationsleaving little room for the dreams of dispersion of the previous cycle.
The decentralized finance gradually between maturity phase and we can see after the fact that the dreams of the Summer DEFI are far away. With the leadership of Aave and other flagship applications on Ethereum and its Layers 2, we see that the capital present in the DEFI is in fact very centralized.
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