Aave (AAVE), the leading decentralized lending protocol, has surged to its highest levels since 2021, reaching a peak of $397 on December 16.
Despite a slight pullback to $373 at the press time, the token has rallied an impressive 119% in the past month, pushing its market capitalization to $5.6 billion.
With strong tailwinds fueling its growth and challenges beginning to surface, investors are left questioning whether Aave can sustain its momentum and where the token will land as the year draws to a close.
Picks for you
What’s driving Aave’s rally
Aave’s latest rally is closely tied to the broader cryptocurrency market rebound, with Bitcoin (BTC) surging past the $100,000 mark. As investors look for opportunities in decentralized finance (DeFi), Aave has emerged as a top choice, outperforming many altcoins with its recent gains.
The data from IntoTheBlock supports Aave’s growing dominance in the DeFi lending sector, where it currently holds a commanding 45% market share.
This dominance is further emphasized by Aave’s staggering total value locked (TVL), which stands at $23.209 billion, according to DeFiLlama, almost equal to the combined TVL of all major lending protocols.
Strategic partnerships drive growth
Beyond favorable macroeconomic conditions, Aave’s recent partnerships and protocol developments have played a key role in its price surge.
The protocol’s planned integration with Linea, a zk-rollup network backed by Consensys, promises improved scalability and lower transaction fees—two crucial factors for attracting new users to DeFi.
Adding to the momentum, Aave’s collaboration with Balancer v3 has bolstered liquidity, reinforcing its role as a key pillar of decentralized finance.
Meanwhile, the partnership with World Liberty Financial (WLFI) marks another milestone, with Aave v3 now deployed on Ethereum (ETH) to enable borrowing and lending for ETH, Wrapped Bitcoin (WBTC), and major stablecoins like USDC and USDT.
On-chain data further supports AAVE’s bullish momentum. According to Santiment, the decline in Mean Dollar Invested Age (MDIA), an indicator measuring the average age of held tokens, signals that dormant AAVE tokens are re-entering circulation, boosting trading volumes and market activity.
Concerns over the Polygon network weigh on Aave
Despite its strong performance, Aave faces challenges tied to its exposure to the Polygon (previously MATIC) PoS chain. Marc Zeller, founder of Aave Chan, has proposed adjustments to mitigate risks linked to bridged assets, citing security concerns reminiscent of past bridge exploits like the Ronin and Harmony hacks.
The proposal suggests setting loan-to-value (LTV) ratios to 0% and increasing the reserve factor to 85%, effectively discouraging further deposits or preventing users from borrowing against their collateral.
AI prediction: AAVE price to target $400 to $450 by year-end
To gauge AAVE’s future potential, Finbold analyzed market data and consulted ChatGPT-4o, which projects the token to close 2024 trading between $400 and $450, depending on market conditions and investor sentiment.
Aave’s growing dominance in the DeFi lending sector, supported by strong on-chain activity, a rising total value-locked, and growing partnerships, highlights its solid foundation for further growth.
However, profit-taking activity poses a potential short-term challenge, with corrections remaining on the table.
That said, Aave’s market leadership and expansion efforts signal a steady upward trajectory. Its ability to weather headwinds and capitalize on the broader market recovery will determine whether it can hit the upper end of its projected range.
Featured image via Shutterstock
