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AAVE Price Analysis – Bullish fundamental and technical indicators

Similar to other crypto-based borrowing and lending platforms, AAVE has quickly become an integral part of the DeFi ecosystem.

Aave is the Finnish word for “ghost”, and the name of an open-source non-custodial protocol for decentralized lending and borrowing on Ethereum (ETH). There are currently 20 supported cryptocurrencies available on the Aave (AAVE) platform.

AAVE Price Analysis 27 Jan 2021 (1)
Source: app.aave.com/markets

Initially known as ETHLend (LEND), the AAVE protocol was founded by Stani Kulechov and launched in November 2017. An ICO raised US$16.2 million, with 37,600 ETH collected. Originally a decentralized peer-to-peer lending service, the model pivoted to liquidity pools.

LEND rebranded to AAVE in September 2018. The AAVE protocol launched in January 2020, with a V2 launching in October 2020. A 100 to 1 LEND to AAVE token migration also occurred in October 2020.

AAVE currently has a market cap of US$3.4 billion, placing it 16th on BraveNewCoin’s market cap table, with US$522 million in trading volume over the past 24 hours. The ICO currently holds an ROI of 7,133%.

The AAVE protocol enables lenders to mint ERC20-compliant tokens, at a ratio of 1:1 to a supplied asset. Lenders receive continuous earnings that evolve with market conditions with a rate that reflects supply.

Borrowers can opt for fixed or variable rate loans with a collateralization ratio and liquidation thresholds dependent on each asset. Variable interest rates adjust algorithmically based on supply and demand.

The loans have a 0.25% origination fee, while AAVE holds a liquidity reserve to mitigate against withdrawal risk. AAVE v2 allows users to swap their collateral to another asset, which helps mitigating risk, where underwater loans face liquidation.

AAVE also offers flash loans, a unique DeFi feature where borrowers can take a loan with zero collateralization, which must be repaid within the same transaction, plus fees, or they are reversed. Associated fees are currently 0.09% for flash loans. This type of loan can be used for arbitrage, refinancing or liquidating purposes. In 2020, over US$27.5 million was stolen within the DeFi ecosystem through the use of flash loan attacks or exploits, none of which occurred on AAVE.

The AAVE token serves three purposes; governance, incentives, and mitigation. AAVE tokens are required to vote and decide on the outcome of Aave Improvement Proposals (AIPs). AAVE can also be staked within the protocol Safety Module to provide security or insurance to the protocol or depositors. Stakers earn rewards and fees from the protocol. AAVE tokens are also burned based on fees gathered by the protocol.

AAVE currently has a 12 million token circulating supply, with a 16 million capped token supply. Over US$3.64 billion is locked within the AAVE protocol in a mixture of assets, including BTC, ETH, and dai. The total value locked into contracts on AAVE is second only to the MakerDAO.

AAVE Price Analysis 27 Jan 2021 (2)
Source: DefiPulse

On-chain AAVE token stats reveal a significant increase in both transactions per day and average transaction sizes over the past few weeks. Transactions per day hit an all-time high of 4,000 on January 26th, with the average transaction size reaching US$33,000 on January 5th. The strong uptick in average transaction sizes in October 2020 is related to the LEND to AAVE migration.

AAVE Price Analysis 27 Jan 2021 (3)
Source: CoinMetrics

The weekly Kalichkin network value to estimated on-chain daily transactions (NVT) ratio (green line) has ranged from 25 to 85 over the past few months. A clear downtrend in NVT suggests a coin is undervalued based on its economic activity and utility, which should be seen as a bullish price indicator. Weekly active addresses have increased 5x since mid-October of last year, hitting an all-time high of 2,770 on January 26th.

AAVE Price Analysis 27 Jan 2021 (4)
Source: CoinMetrics

On the development side, the AAVE GitHub account has 26 repos. There have been 660 commits on the main repo over the past year by eight devs. Most coins use the developer community of Github where files are saved in folders called "repositories," or "repos," and changes to these files are recorded with "commits," which save a record of what changes were made, when, and by who. Although commits represent quantity and not necessarily quality, a higher number of commits can signify higher dev activity and interest.

AAVE Price Analysis 27 Jan 2021 (5)
Source: GitHub – aave/protocol-v2

AAVE Price Analysis 27 Jan 2021 (6)
Source: GitHub – aave/aip

Technical Analysis

Roadmaps for future market movements can be found on high timeframes using Exponential Moving Averages, Volume Profile Visible Range, Pivot Points, Ichimoku Cloud, and divergences. Further background information on the technical analysis discussed below can be found here.

On the daily chart, the 50-day and 200-day EMA has been bullishly crossed since late-October 2019, with only a few price touches of the 200-day EMA to present. Thus far, the cross has resulted in a 21,600% rally. Both EMAs should be seen as support, with the 50-day EMA at US$145 and 200-day EMA at US$81. Price last touched the 200-day EMA in early November.

Yearly pivot supports also stand at US$226, US$166, and US$126, with strong VPVR support below US$90 (not shown). Overhead resistance sits at the psychological resistance of US$300 and US$350 as well as the yearly pivots of US$288 and US$350. Additionally, a growing bearish divergence has formed over the past few weeks with higher highs in price and lower highs in RSI, suggestive of waning bullish momentum.

AAVE Price Analysis 27 Jan 2021 (7)

Turning to the Ichimoku Cloud, four metrics are used to indicate if a trend exists; the current price in relation to the Cloud, the color of the Cloud (red for bearish, green for bullish), the Tenkan (T) and Kijun (K) cross, and the Lagging Span. The best entry always occurs when most of the signals flip from bearish to bullish, or vice versa.

Daily Cloud metrics with doubled settings (20/60/120/30) for more accurate signals, are bullish; the spot price is above the Cloud, the Cloud is bullish, the TK cross is bullish, and the Lagging Span is above the Cloud and above the current spot price. The trend will remain bullish so long as the spot price remains above the Cloud, currently at US$71. Kijun support also sits at US$180.

AAVE Price Analysis 27 Jan 2021 (8)

The AAVE/BTC pair is currently in price discovery. Daily trend metrics are also bullish as price sits above both the 200-day EMA and daily Cloud, with Kijun support at 0.0057 BTC. Overhead yearly pivot resistance sits at 0.011 BTC and 0.015 BTC. Strong support, based on yearly pivots, 200-day EMA, and VPVR sits at 0.0037 BTC. Additionally, no bullish or bearish divergences are present to suggest waning bullish momentum.

AAVE Price Analysis 27 Jan 2021 (9)

Conclusion

Similar to other crypto-based borrowing and lending platforms, AAVE has quickly become an integral part in the DeFi ecosystem. AAVE is only second to the MakerDAO in total value locked, cementing the two platforms as the market leaders and crowd favorites. On-chain stats for AAVE show a strong uptick in activity over the past few weeks, coinciding with a rise in token price.

Technicals for both the AAVE/USD and AAVE/BTC pairs show a bullish trend with prices over the 200-day EMA and daily Cloud. Upside resistance sits at US$300and US$350 and 0.011 BTC and 0.015 BTC for the AAVE/USD and AAVE/BTC pairs, respectively. Both pairs show strong support, based on the daily Cloud, at US$180 and 0.0057 BTC, respectively.


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