A widely followed crypto analyst says decentralized borrowing and lending protocol Aave is bound to surge once the bear market is over.
In a new video, pseudonymous Coin Bureau host Guy tells his 2.08 million subscribers that AAVE remains undervalued during the current market downturn.
“Today, Aave’s ecosystem reserve only holds 1.7. million AAVE, according to Etherscan. On the demand side of this economic equation, Etherscan suggests that the number of AAVE token holders continues to rise and I suspect this is because the AAVE token sticker price has declined significantly, which has made it more appealing to investors who don’t pay attention to market cap.
On that note, I couldn’t help but notice the comments during the last video arguing that Aave was not undervalued because its ticker price was high when AAVE was, and arguably, still is undervalued as its market cap is four times smaller than the total value locked in the Aave protocol. Always remember that it’s the market cap that matters, not the price tag.”
Guy says the new Aave stablecoin, GHO, will increase demand for the crypto asset.
“What does [matter] is the relative lack of demand drivers for the AAVE token. The AAVE token’s utility is currently limited to governance and staking, which offers an admittedly attractive reward relative to alternatives, albeit with slightly higher risks.
The silver lining is that most of Aave’s supply is in circulation, meaning there isn’t much sell pressure left and this seems to be the rationale behind allocating the interest rates from the GHO stablecoin to the Aave treasury. It reduces the sell pressure for the AAVE token and ensures the protocol’s longevity.
The introduction of the GHO stablecoin should also increase the demand for AAVE since it will make it possible for Aave stakers to mint GHO at near-zero interest rates. The caveat is that an increase in staked Aave could dilute the overall staking reward, which could weaken Aave’s second demand driver.”
The analyst says several factors contribute to Aave shedding over 70% of its value in January, including energy and supply chain disruptions, a rise in interest rates and an increase in circulating supply, resulting in $40 million worth of potential sell pressure.
Guy says demand drivers will have minimal impact on the price of Aave because of the current downturn, but he expects the situation to change once the bear market is over.
“The harsh reality is that Aave’s future improvements to demand won’t do much to change the fact that we’re currently in a crypto bear market, but it will help the Aave token rise to astronomical heights when the next bull market comes around, especially if the GHO stablecoin gains serious adoption.”