There’s one thing that all investors like: doubling, tripling, or even quadrupling their money. How about a 12-fold increase?
That’s what traders have reaped this year from the decentralized lender Aave’s LEND token, up about 1,200% on a year-to-date basis.
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Other tokens from the realm of decentralized finance, known as DeFi, are up by triple-digit percentages, including Synthetix’s SNX, Thorchain’s RUNE and Kyber’s KNC. Bitcoin, the biggest cryptocurrency by market capitalization, is up just 28%.
It would be easy to write off such outsize gains as just another example of the speculative hype of cryptocurrency markets, where big price swings are common. But in the case of the LEND token, the price rise may have been fueled by an increase in actual usage.
Some $158 million of value have been deposited as collateral in Aave’s lending protocol, just six months after the project went live in January. By comparison, Compound, another decentralized lender, had just $27 million in its protocol at its six-month mark in March 2019. Compound has since gone on to increase the figure, known as total value locked, by 25-fold to $684 million, to become the largest lending protocol, according to DeFi Pulse, which tracks the industry.
“The main reason I suspect LEND has received so much attention is simply because, after launching the mainnet early this year, usage on Aave has grown incredibly fast,” Jack Purdy, an analyst with digital-asset research firm Messari, told First Mover in an email.
Last week, Aave rolled out a new feature, “credit delegation,” which effectively allows users to set up credit lines that could then be drawn down by other users, in a form of peer-to-peer lending. Under the program, investors can deposit stablecoins – digital tokens backed by U.S. dollars or other government currencies – and then delegate the right to borrow against that collateral to another user.
The delegator can set terms of the loans, such as interest rates and amount of capital that can be drawn. Since the ultimate borrower isn’t posting collateral via the platform, the delegator is bearing most of the risk, and might be able to charge higher interest rates.
“Aave’s introduction of credit delegation is groundbreaking,” Su Zhu, CEO of the Singapore-based digital-asset fund Three Arrows Capital, told First Mover in a Telegram message.
Aave CEO Stani Kulechov told First Mover in a Discord chat that the “market capitalization of LEND has been following mostly our protocol…