In the DeFi space, network effects determine success or failure, and no one does it better than Aave.

Author: Kolten

Translated by: Tim, PANews

In the DeFi space, network effects determine success or failure, and no one does it better than Aave. With five years of market accumulation, a user base of millions, and the deepest liquidity in the DeFi sector, projects built on Aave will gain unparalleled scale and network effects, which is a core advantage that other platforms cannot replicate.

Partners can instantly access infrastructure, user groups, and liquidity, which would typically take years to build independently. This is what we refer to as the "AAVE effect."

Some Data

Source: DeFiLlama

Aave is currently the largest protocol in the DeFi space, more accurately, the largest protocol in history. Its TVL accounts for 21% of the entire DeFi market, holding a 51% share in the lending market, with net deposits exceeding $49 billion. While these figures are already impressive, the real core lies in Aave's market penetration. For example:

• After Ethena expanded its sUSDe business on Aave, deposits surged from $2 million to $1.1 billion in just two months.

• Within just a few weeks of Pendle being added to Aave, users deposited $1 billion worth of PT tokens. This figure has now doubled to $2 billion, making Aave the largest supply market for Pendle tokens.

• KelpDAO's TVL skyrocketed from 65,000 ETH to 255,000 ETH within just four months after rsETH was incorporated into the Aave protocol, achieving a fourfold increase.

There are countless examples. Aave holds nearly 50% of the active stablecoin market and is the primary circulation hub for Bitcoin in DeFi. Notably, Aave has achieved nearly $1 billion in TVL across four independent blockchain networks, a rare and profound layout.

How is the Aave effect formed?

Anyone can incentivize deposits through token rewards and yield farming programs to expand the supply side. This is why, on the surface, TVL is not always a meaningful metric. In fact, attracting funding supply is now seen as a solvable problem, but creating demand for asset usage is much more challenging unless you are a platform like Aave.

Source: https://tokenterminal.com/explorer/markets/lending/metrics/active-loans

The active borrowing volume on the Aave platform exceeds $18 billion, far surpassing the total of all its competitors. The protocol is not just a simple high-level staking contract; when users deposit assets into Aave, those assets are either lent out or used as collateral to borrow other assets. In other words, funds are never idle.

This creates a positive feedback loop that continuously reinforces demand. When an asset goes live on the Aave market, or when a development team builds on it, they can all benefit from this demand. Ultimately, everyone will benefit from the actual economic activities generated by a large active user base.

This is crucial for teams developing on Aave. The protocol has withstood five years of testing, traversing multiple market cycles, and has consistently earned the trust of developers and users. As a major platform for billions of dollars in funds, it far exceeds many emerging protocols today.

Source: Block Analitica

Additionally, developers on the Aave platform are not limited by "scale." Compared to other protocols, the deposit and borrowing capacity that Aave can support can exceed tens of millions of dollars. This allows fintech applications of any size (retail user level, institutional level, or both) to develop robustly on this platform.

Outlook

When Aave V4 goes live, the core driving engine behind the Aave effect will continue to evolve. Its new architecture will provide builders and users with unprecedented asset access channels and unique lending strategy solutions. (Related reading: "In-depth Analysis of Aave V4: How the Lending Leader Rebuilds Its Moat?")

All the factors that currently make Aave valuable to DeFi will become even more pronounced in the future.

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