AAVE Trades at Premium to LEND Amid Token Migration
Insight by IntoTheBlock shows traders are eager to stake. Also, Shell Protocol launch and DeFiDollar's governance token.
Hello Defiers! Here’s what’s going on in decentralized finance,
- IntoTheBlock provides on-chain insights on the switch from Aave’s LEND to AAVE tokens
- New AMM Shell Protocol draws $14M three days after launch
- DeFiDollar introduces governance token
and more :)
If you’re receiving this email, that means you’re a paid subscriber of The Defiant, (thank you!) You’re getting the full content of this newsletter, while free subscribers are getting only a portion of it. Subscribers also get exclusive access to The Defiant’s Discord chat group for the community, here’s a new link to join.
📺 Watch The Quest for Rarity: DeFi Meets NFTs With Aavegotchi
Robin Schmidt and Alp Gasimov have produce a true crypto storytelling masterpiece: watch NFTs come alive like they never have before in
🎙Listen to this week’s podcast episode w/ Gavin McDermott of IDEO:
🙌 Together with Zerion, a simple interface to access and use decentralized finance, Perpetual Protocol, which provides decentralized perpetual contracts for any asset, and HackAtom V, a two-week virtual hackathon organized by Cosmos.
On-Chain Markets Update by IntoTheBlock
Traders Are Eager to Make the LEND to AAVE Switch
DeFi lending protocol Aave started the migration from the LEND utility token to its new AAVE governance token. The migration had originally been proposed in the Aavenomics token economics upgrade paper and was recently approved through governance with 100% of addresses voting “Yae”, or in favor of the proposal. LEND holders will receive 1/100 AAVE tokens for every LEND token that goes through the migration process.
The migration aims to align token holders’ incentives with the protocol’s best interests: the AAVE token protects Aave against shortfall events while rewarding through staking. Shortfall events occur when there is a deficit in the system, like the one that led MakerDAO to be involved in a $28 million lawsuit following Black Thursday.
This leads to the creation of the Aave Safety Module (SM). AAVE holders can stake their tokens in the SM and be compensated with staking rewards with an APY of approximately 11%. AAVE held in the SM then acts as a reserve protecting the protocol from unexpected losses in funds potentially stemming from liquidations, smart contract risk or oracle failure.
This does bring additional risk to users staking, who risk losing up to 30% of the assets locked in the SM in case there is a shortfall event, slashing their positions. In the initial phase though, stakers’ positions will not be slashed, incentivizing more holders to migrate and stake their AAVE.
The anticipated protocol upgrade already had a strong impact on key metrics. Leveraging IntoTheBlock’s on-chain indicators we can observe that Aave supporters were eager to migrate their tokens and start staking.
Here are three on-chain insights on the impact of the AAVE token migration:
1. Large Transactions Volume Sets New All-Time High as Whales Migrate
IntoTheBlock monitors transactions of over $100,000 to have an approximation of large and institutional investors’ activity. All of these transactions are aggregated in the Large Transactions Volume indicator. As can be seen below, LEND transactions recently reached a new all-time high on October 5:
Source: IntoTheBlock’s LEND Financial Analytics
With the migration process starting on October 2 at 10:00PM UTC, LEND large transactions have increased dramatically.
Using Aavewatch’s migration tracker, we can verify that these transactions indeed were to upgrade LEND tokens to AAVE tokens. Within 4 days, over a third of the total supply of LEND migrated to AAVE, highlighting the strong support from whales in the Aave ecosystem.
2. Active Addresses Spike as LEND Holders Migrate
While Large transactions spiked a few days after the migration, address activity picked up right away. The total number of active LEND addresses reached 2.66k, the third highest in 2020, the day after the token migration started.
Source: IntoTheBlock’s LEND Addresses Stats
Additionally, zero balance addresses — addresses that transfer out all of their tokens in a given day — spiked to over 2,000 the same day. This points to the likelihood of a large percentage of LEND holders transferring their tokens to receive the new AAVE token.
3. LEND has Been One of the Most Profitable Tokens - Can AAVE Keep Up?
Aave’s growth in 2020 has been welcomed by token holders. The LEND token has increased by 2,500% while value locked in the Aave protocol grew from $0 to almost $1.3B. As a result LEND has been one of the most profitable tokens.
Source: IntoTheBlock’s LEND Financial Analytics
IntoTheBlock categorizes addresses as in the money or out of the money based on if they are profiting or losing money on their positions based on on-chain data. Even after a 50% price correction from its highs of $0.90, almost 92% of LEND addresses are currently profiting from their holdings.
Thus far the AAVE token has dropped in price as broader markets have fallen in October following the BitMEX scandal, Trump’s coronavirus and stimulus postponement.
That said, AAVE tokens are currently priced at a 1-2% premium over the equivalent in LEND. This shows that investors are willing to pay more to be able to stake and earn with their tokens.
Overall, while the hype surrounding DeFi tokens seems to be settling down, leading protocols such as Aave continue to make fundamental progress. Ultimately, the token migration is set to be just a first step as Aave aligns incentives between token holders and the protocol’s security.
Shell Protocol Draws $14M Three Days After Launch
Shell Protocol is now holding almost $14M in its stablecoin liquidity pool three days after launch.
Shell is a new automated market maker, or AMM. Shell’s first liquidity pool is comprised of four stablecoins: Dai, USDC, USDT and sUSD. The pool is now holding roughly $7.2M of USDT, $5.4M of USDC, $1M of Dai and $300k of sUSD.
💡 Automated market makers enable the exchange of digital assets by holding pools of liquidity of every token listed on the exchange and setting a pricing curve to determine the rate between tokens. This means an exchange can happen automatically, without the need of an order book or centralized party.💡
Inspired by Others
Shell aims to take the best of Curve, Balancer, mStable and Mooniswap. Like Curve, Shell aims to enable large stablecoin-to-stablecoin trades with minimal slippage. Like Balancer, Shell pools can have weights. In the case of its stablecoin pool, weights are: 30% DAI, 30% USDC, 30% USDT and 10% SUSD.
Similar to mStable, Shell pools have minimum and maximum allocations, to protect liquidity providers in case one one of the assets loses its peg. In the case of this first stablecoin pool, token weights must always range between 3% and 57%.
Similar to Mooniswap, Shell pools will charge a dynamic fee that increases if a stablecoin deviates from its peg. This mechanism helps redistribute profits form arbitrage traders to liquidity providers.
Shell has a native token ($SHELL), with no active incentive program yet. It is building out its governance system and may introduce liquidity mining in the future.
The project, which is still in beta, was audited by Consensys Diligence and ABDK.
DeFiDollar Introduces DFD Governance Token
DeFiDollar, which issues the DUSD stablecoin, is introducing a second platform token called DFD.
DFD will enable holders to make critical protocol decisions and it will serve as a backstop against DUSD volatility, similar to MKR with Dai.
The total supply of the DFD is 100M with 56% going to the community, 23% to the team, 11% to investors and 10% for a “future strategic reserve,” according to a Medium post announcing the move. The community share of tokens will be distributed via liquidity mining, retroactively for participation, and in a token launch, with details still to be announced.
Solana Unveils Wormhole Cross-Chain Bridge to Ethereum: The Block
Solana, the Ethereum challenger and home to Serum, FTX’s new decentralized exchange, has unveiled a cross-chain bridge that will allow users to turn ERC20 tokens into Solana’s SPL tokens for use in DeFi applications, The Block reported. Wormhole was developed in collaboration with Certus.One, a startup that creates validator architecture for proof-of-stake blockchain networks.
Square Invests $50 Million in Bitcoin
Payments giant Square announced today that it bought ~4.7k BTC for $50M, which represents about 1% of the company's total assets as of 2Q of 2020. “Square believes that cryptocurrency is an instrument of economic empowerment and provides a way for the world to participate in a global monetary system, which aligns with the company’s purpose,” according to the announcement.
The Defiant is a daily newsletter focusing on decentralized finance, a new financial system that’s being built on top of open blockchains. The space is evolving at breakneck speed and revolutionizing tech and money. Sign up to learn more and keep up on the latest, most interesting developments. Subscribers get full access at $10/month or $100/year, while free signups get only part of the content.
About the founder: Camila Russo is the author of The Infinite Machine, the first book on the history of Ethereum, and was previously a Bloomberg News markets reporter based in New York, Madrid and Buenos Aires. She has extensively covered crypto and finance, and now is diving into DeFi, the intersection of the two.