A widely followed crypto analyst claims that decentralized borrowing and lending protocol Aave is set to rise once the bear market ends.
In a new video, the pseudonymous host of Coin Bureau Guy recount its 2.08 million subscribers that AAVE remains undervalued during the current market downturn.
“Today, the Aave ecosystem reserve only holds 1.7 million AAVEs, according to Etherscan. On the demand side of this economic equation, Etherscan suggests that the number of AAVE token holders continues to rise and I suspect this is because the sticker price of the AAVE token has fallen significantly, which has made it more attractive to investors who don’t pay attention to market capitalization.
On that note, I couldn’t help but notice the comments in the last video claiming that Aave was not undervalued because its price was high while AAVE was, and arguably still is undervalued because its market capitalization is four times smaller than the total value locked in the Aave protocol. Always remember that it is the market capitalization that matters, not the price.
Guy says the new Aave stablecoinGHO, will increase demand for the crypto asset.
” What does mean [matter] is the relative lack of demand engines for the AAVE token. The usefulness of the AAVE token is currently limited to governance and staking, which offers an admittedly attractive reward compared to the alternatives, but with slightly higher risks.
The silver lining is that most of Aave’s supply is in circulation meaning there isn’t much selling pressure left and that seems to be the rationale behind the rate allocation. GHO stablecoin interest in Aave treasure. This reduces the selling pressure for the AAVE token and ensures the longevity of the protocol.
The introduction of the GHO stablecoin is also expected to increase the demand for AAVE since it will allow Aave stakers to mint GHO at near-zero interest rates. The caveat is that an increase in staked Aave could dilute the overall staking reward, which could weaken Aave’s second demand driver.
The analyst says that several factors contribute to Aave losing more than 70% of its value in January, including energy and supply chain disruptions, rising interest rates and increased circulating supply, leading to potential selling pressure of 40 million of dollars.
Guy says demand drivers will have minimal impact on the price of Aave due to the current downturn, but he expects that to change once the bear market ends.
“The harsh reality is that future Aave demand enhancements will do little to change the fact that we are currently in a crypto bear market, but it will help the Aave token reach astronomical highs when the next bull market will come, especially if the stablecoin GHO is adopted seriously.
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