By Liam Kelly, DL News
Compiled by: Felix, PANews
Over the past seven years, Aave Labs has built its brand by creating a simple lending platform. With its stable DeFi banking business, Aave has survived the 2022 bear market.
Today, the Finnish co-founder, Stani Kulechov, is building Aave into a DeFi complex, including a stablecoin called GHO, a crypto wallet called Family, and Lens Protocol, a social media network that is seeking $50 million in funding.
These businesses, along with Aave’s lending business, are now under a new London-based parent company, Avara.
Aave's expansion moves intensify competition with several other DeFi institutions.
“Obviously, the point of a decentralized system is that it always opens the door to competitors,” Kulechov said.
The most notable of these is MakerDAO, the seven-year-old stablecoin issuer that has long been in lockstep with Aave. As Aave has added new businesses, so has Maker.
To scale up the business, Kulechov is replacing the simple model with a more complex ecosystem. By building a one-stop trading platform, Avara will meet the needs of DeFi novices and experienced crypto users.
“Every person on the planet, in every language, in every country, in every place, has social capital,” Kulechov said. “If we can solve the problem of online ownership, we can fundamentally unlock more value.”
To date, Kulechov and the Aave team have proven themselves adept at unlocking value.
According to TokenLogic data, Aave has generated approximately $100 million in revenue in the past 30 days by charging users fees for borrowing, clearing loans and deposits.
DefiLlama data shows that Aave's total TVL has more than doubled to $11 billion in the past 12 months. Aave, which is active on more than a dozen different blockchains, surpassed MakerDAO this year to become the third most valuable DeFi project.
Aave’s TVL over the past three years; Source: DeFi Llama
Building a “walled garden” for Aave users might sound counterintuitive, but it makes sense, said Drew Osumi, co-founder of venture capital studio Number Group.
Drew Osumi said: "If Avara has social, wallet, lending and stablecoin functions, I think for people who are completely unfamiliar with cryptocurrency, they will find it an easy onboarding experience."
“The grand plan feels like building a permissionless, decentralized Meta where users can truly value it based on market value.”
But why do we need another social media platform?
"The main idea is probably not to replace Twitter, but to build an open shared network that anyone can build and that already has users," Kulechov said.
Lens Protocol allows developers to build Instagram-like applications and inject crypto into them. Lens meets the needs of NFT collectors by converting profile photos and usernames into non-fungible tokens, and also allows decentralized autonomous organizations (DAOs) to raise key issues and vote for their communities directly on Lens.
DeFi Competitors
Aave and Maker have been the cornerstones of DeFi since the ICO era in 2017. Both have experienced the rapid growth of cryptocurrencies and market crashes. While the two compete, they also often cooperate. This competition has reached its peak in the stablecoin track.
Maker issues DAI, the oldest decentralized stablecoin in DeFi. Aave began issuing its own stablecoin GHO in July 2023.
Stablecoins are used throughout DeFi. Source: DeFi Llama
Both stablecoins are pegged to the U.S. dollar and are overcollateralized by other cryptocurrencies. For example, minting $1 of a stablecoin means putting more than $1 into other cryptocurrencies such as Ethereum.
According to analysts at Bernstein, the stablecoin market is expected to grow to $3 trillion in the next five years.
Lito Coen, head of growth at cross-chain protocol Socket Protocol, said: "Stablecoins are the biggest market opportunity in the crypto space. If you are involved in another market after lending, stablecoins are the most logical choice."
Extreme volatility
Aave is competing with GHO. This is because Maker launched its own lending protocol Spark in 2023.
“GHO makes a lot of sense, especially when one of the largest over-collateralized stablecoins is directly competing with Spark,” Lito Coen said.
The battle lines became clearer in April when the Maker community proposed backing DAI with a new, untested stablecoin issued by the ethereum blockchain platform Ethena.
This asset-backed dollar peg, called USDe, is different from GHO or DAI. Rather than being overcollateralized, it is backed by ETH staked on exchanges and short ETH positions. These positions make money if the price of ETH drops. It’s a novel design mechanism, but one that has yet to be tested in extreme markets.
For Aave, the emergence of the Ethena market means a huge risk. If USDe depreciates due to a market crash, people will worry that DAI will also be depegged. Because Aave has more than $130 million worth of DAI, this is a risk that the Aave community cannot afford.
In April this year, Marc Zeller, founder of a DeFi governance project called the Aave Chan Initiative, proposed adjusting DAI’s loan-to-value ratio (LTV) to 0% on all Aave deployments and removing sDAI incentives from the Merit program.
Kulechov agreed.
“If the results are favorable, the delisting process should be initiated immediately,” Kulechov wrote on the Aave forum.
Kulechov blamed risk management rather than head-to-head competition. “People’s risk perception of DAI has increased significantly. If the risk increases, the best thing to do is to take the most conservative approach.”
Meanwhile, Lens Protocol is facing competition from another encrypted social media protocol, Farcaster. The two offer many of the same features, but Lens stores more activity (likes and follows, etc.) on the blockchain than Farcaster. Farcaster focuses more on speed and user experience.
Farcaster is currently far ahead, with nearly 600,000 users, while Lens has only 430,000. Farcaster recently completed a $150 million round of financing, with a valuation of $1 billion, led by Paradigm, with participation from a16z, USV and other top venture capital firms.
However, the staying power of these two social media projects remains to be seen.
Lito Coen, head of growth at cross-chain protocol Socket Protocol, said: “For me, the most uncertain thing is Lens. This is a completely different track in the crypto space, and overall, there is much less experience to draw on.”
New Financing
In June this year, it was reported that Lens was undergoing a new round of financing and its valuation would reach US$500 million.
“I really like what Kulechov has done,” Lito Coen said. “I think there are very few teams that have the vision to scale and try to expand.”
Despite all of DeFi’s novel technologies and business models, Kulechov’s move suggests that traditional product development and new markets are the key to growth.
“We like to go from building infrastructure to thinking about what these businesses are and what interfaces can be built,” Kulechov said.
Related reading: From ETHLend to Aave V4, the evolution of decentralized lending