Aave Stands as the Largest and Most Tested Lending Protocol
As the undisputed leader in on-chain lending, Aave boasts an incredibly strong and sticky moat. We believe Aave is severely undervalued as a category leader in one of crypto's most critical sectors, with massive growth potential the market hasn't yet recognized.
Launched in January 2020 on Ethereum mainnet, Aave celebrates its 5th year of operation in 2025. It has become one of DeFi's most battle-tested protocols, currently holding $7.5 billion in active loans - five times larger than its nearest competitor Spark.
Protocol Metrics Exceed Previous Cycle Highs
Aave stands among the few DeFi protocols surpassing their 2021 bull market metrics. Its quarterly revenue has exceeded peak 2021 Q4 levels, with growth accelerating even during 2022-2023's sideways market. The 2024 recovery saw consistent 50-60% quarter-over-quarter growth.
Year-to-date, Aave's TVL nearly doubled due to:
- Increased deposits
- Rising token prices of core collateral assets (WBTC and ETH)
- TVL now sits at 51% of 2021 peak levels
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Superior Profit Quality Demonstrates Product-Market Fit
Unlike the previous cycle fueled by unsustainable token incentives, Aave's current growth is organic and sustainable, driven by:
- Returning market speculation
- Increased loan activity
- Higher borrowing rates
During August's global market downturn, Aave demonstrated resilience by:
- Maintaining revenue through liquidation fees
- Withstanding volatility across collateral bases and chains
Strong Fundamentals Meet Historically Low Valuation
Despite metric recovery, Aave trades at:
- Price-to-Sales ratio of 17x (3-year low)
- Far below 3-year median of 62x
Four Pillars of Aave's Competitive Moat
- Impeccable Security Record: Zero major smart contract breaches
- Network Effects: Thriving bilateral marketplace of lenders/borrowers
- Exceptional DAO Governance: Diverse, high-participation decentralized management
- Multi-Chain Dominance: Leading TVL across nearly all EVM chains
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Tokenomics Overhaul Drives Value Accumulation
Key changes include:
- Eliminating staked AAVE slashing risk
- Introducing staked aTokens (aUSDC/awETH) for security
- New "Anti-GHO" mechanism aligning stakeholders
- Revenue sharing with stakers meeting specific conditions
Growth Catalysts Positioned for Expansion
Aave V4 Breakthroughs
- Unified liquidity layer across EVM/non-EVM chains
- Account abstraction for simplified asset management
- zkSync and Aptos deployments expanding reach
- RWA integration potential
Macro Tailwinds
- Positive correlation with BTC/ETH ETF inflows
- Stablecoin supply growth boosting yields
- Bull market risk-seeking behavior
Final Assessment
We maintain strong conviction in Aave as:
- The clear leader in decentralized lending
- Positioned for disproportionate market share gains
- Offering one of crypto's best risk-adjusted opportunities
The current valuation disconnect won't persist as fundamentals continue strengthening across:
- TVL growth
- Revenue acceleration
- Strategic expansions
FAQ
Q: Why is Aave considered undervalued?
A: Despite leading its category with growing metrics, Aave trades at 3-year low valuation multiples while fundamentals strengthen.
Q: What makes Aave's security exceptional?
A: Five years of operation without major smart contract breaches, with robust risk management attracting institutional capital.
Q: How does V4 improve Aave's offering?
A: Cross-chain liquidity unification, non-EVM expansion, and RWA integration position it for mainstream adoption.
Q: What percentage of Aave's TVL comes from non-stablecoins?
A: Over 75% derives from BTC/ETH collateral assets, benefiting directly from crypto ETF inflows.
Q: How does Aave compare to traditional lending platforms?
A: Its decentralized, transparent, and globally accessible model offers superior efficiency without intermediaries.