Decentralized lending protocol Aave is set to activate its liquidity mining program on Monday in a bid to gain greater appeal in the DeFi ecosystem and overtake rival Compound.
Aave, currently the third ecosystem protocol DeFi Aave, a global provider of liquidity, launched its liquidity mining program on Monday to increase its attractiveness within decentralized finance ecosystems. Aave's goal with this new program is to encourage more investors to participate within its protocol, attracting more capital and, therefore, increasing its liquidity.
According to data from DeFi Pulse, Aave has a total liquidity of 6.580 million. This protocol is second only to decentralized lending protocols MakerDAO y Compound, which have $9.740 billion and $8.900 billion in TVL, respectively.
However, in the last few hours, Aave has grown by more than 11% in TVL (Total Value Locked), going from $5.800 billion on Sunday to the $6.580 billion it currently has. This figure shows that the new liquidity mining program is meeting its objective, and that Aave is attracting more investors motivated by its new services.
Source: DeFiPulse.
Liquidity mining or Liquidity Mining (LM) Liquidity Mining has become one of the biggest draws for investors in decentralized finance ecosystems, known as DeFi. Liquidity Mining allows investors to store their funds in digital assets within a DeFi protocol and earn rewards for doing so.
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AIP: Aave Improvement Proposal
The proposal for the creation and activation of the liquidity mining program in Aave was presented on April 22 in a Aave Improvement Proposal (AIP).
La AIP 16, presented by investor Anjan Vinod, notes that an LM program would be best for “increasing lending and borrowing activity in specific markets” for Aave, improving its performance and competition within the ecosystem. Vinod noted that almost all major decentralized finance protocols have an active LM program, which has allowed them to boost their activities and services.
In the case of Aave, the liquidity mining program will use a small portion of the Ecosystem Reserve, around 5%, to power its lending and borrowing activity on the markets.
Under the proposal, providers and borrowers of liquidity in the funds of the stablecoins USDC, DAI and USDT, and the cryptocurrencies, GUSD, ETH, and WBTC will earn rewards in stAAVE tokens, in addition to their standard interest yield income. Aave’s liquidity mining program will distribute 2.200 AAVE tokens per day for participation, i.e. staking.
On the other hand, in his proposal Vinod also highlighted that incentivizing rewards in AAVE will contribute to a better distribution of the token, which will reach the hands of more investors and users in a broader and fairer way. A better distribution of AAVE will contribute to improving the decentralization of the governance of the lending protocol.
Natural migration to Aave V2
According to the AIP 16 proposal, activated this Monday, the liquidity mining program will be active only in the second version of the protocol, Aave V2, allowing developers to incentivize the natural migration of protocol investors and their funds from its first version, Aave V1, to Aave V2.
Vinod notes that about 40% of Aave’s total liquidity is still deposited on its first version, but that it suffers from Ethereum’s high transaction fee rates, preventing investors from making small transactions due to high gas costs. Instead, Aave V2 is an optimized version of the protocol that offers a solution to this problem, allowing investors to interact with the lending protocol with fairly affordable fee rates.
Vinod also believes that the decrease in liquidity on Aave v1 will facilitate a gradual depreciation of this iteration of the protocol, allowing more development activity to be directed towards Aave V2, fostering its growth.
The Aave improvement proposal reached a quorum, with a total of 109 participants and more than 730.000 votes in favor, against 1.883 votes against the activation of this proposal.
AAVE grows by 18,5%
In addition to the increase in the total value locked of the DeFi protocol, its native token AAVE has seen an 18,5% growth in the markets in the last few hours. AAVE is currently trading at a value of $403,5, and its market capitalization amounts to more than 5.100 billion dollars.
Although AAVE is still far from reaching its all-time high of $575 seen on February 10, its growth in the last few hours is quite striking. AAVE's current market cap gives it the 29th position among the most important cryptocurrencies in the industry.
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