DeFi Rebounds as Aave v3 Loan Volume Spikes to Record

Decentralized finance is snapping out of its sideways crawl.

Aave v3 hit an all-time high in daily assets borrowed, according to IntoTheBlock data. DEXs had their best week since March in terms of volume, and total value locked is at the highest since June, according to DeFiLlama.

Traders' increased risk appetite is driving DeFi activity. Crypto investors are feeling more optimistic and leaving the sidelines as "number go up" again thanks to speculation a spot Bitcoin ETF will be approved in a matter of weeks and to a better (or at least less bearish) macro environment.

"Demand for leverage has been growing as people rush to speculate," said Lucas Outumuro, analyst at IntoTheBlock.

Aave Record Borrow Volume

There was a record $182M of assets borrowed on Aave v3 on Ethereum on Nov. 15, IntoTheBlock data show. With repayments of $150M that day, net inflows were a fraction of that at $31M. Still, the overall trend shows a sustained increase in demand to take out collateralized loans.

Higher Yields and TVL

Demand to borrow is driving up yields. This week, borrow rates for USDC on Aave climbed to 9.2%, while lend rates on the protocol climbed to 7.6%, the highest for both since August.

Higher yields are attracting more liquidity, thus increasing TVL. Assets deposited in smart contracts have been inching up since last month, crossing $47B for the first time since May, according to DeFiLlama data.

All this increased activity is reflecting in decentralized exchange volume. $244B traded hands on DEXs last week, the most since the week of March 18, according to DeFI Llama. October was the best month for DEXs since June, with $61.4B traded.

As traders join the fray again, prices for DeFi tokens are climbing. DeFi sector market cap is at $65B, the highest since May, according to Coingecko.

Some will say, "we're so back." But no so fast, as DeFi token prices still fail to outperform ETH.

The Arch Finance Sector Index shows DeFi tokens have broadly traded in line with Ethereum's native currency for the past two months.

And while a Nansen chart showed returning traders are climbing, first-time traders remain flat, so at this stage, DeFi remains an echo chamber.

Which could lead that same person saying "we're so back," to quip, "we're so early."