On-Chain Markets Update by IntoTheBlock
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:
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.
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.
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.