Bids for the lending platform token surged dramatically after Bitwise Investments announced an Aave-focused fund for institutional investors.
Demand for Aave has boomed dramatically in the previous 24 hours as traders assessed its involvement in Bitwise Investment’s upcoming institutionally focused investment vehicle.
The San Francisco-based asset management firm announced Wednesday that it would invest directly in Aave to back its “Bitwise Aave Fund,” a fund created to build a bridge between accredited investors and the emerging decentralized finance (DeFi) sector.
“There is growing demand from financial advisors, hedge funds, institutions, and other professional investors for exposure to the fast-growing DeFi markets,” Matt Hougan, chief information officer of Bitwise, said in a press release, adding that the investment products would simplify access to DeFi markets for professional investors.
The announcement helped to send the bids for Aave higher across spot exchanges. As a result, the DeFi protocol token surged 9.90% to $333.84 and continued its upside momentum heading into the current session.
It established an intraday high of $372.71 on Thursday, a level it last approached on June 9.
Behind the demand
The latest bout of uptrend pushed Aave’s year-to-date gains a little over 320%, asserting its growth in the emerging DeFi sector. In detail, Aave enables users to earn interest rates on deposits and borrow assets with a stable or variable interest rate option.
The protocol also enables “flash loans,” wherein users can borrow funds for ultra-short durations without needing to provide collateral.
Meanwhile, the token Aave (formerly known as LEND) allows the community to govern the protocol’s ecosystem. In doing so, Aave holders can propose, vote and decide on new additions, features and assets to the protocol.
Additionally, a pre-programmed algorithm burns Aave based on the fees earned by the protocol, thereby ensuring that the token remains scarce in the long run.
As a result, the total value locked (TVL) inside the Aave reserve pools has climbed from $519.9 million to $11.2 billion year-over-year, per data provided by DappRadar. The total outstanding loans issued via Aave also have grown 70 times in the previous 12 months.
Ty Young, a researcher at crypto data aggregator Messari, noted that investing in DeFi projects makes more sense for institutional investors than putting capital in Bitcoin (BTC), explaining that protocols like Aave “generate cash flow and have intrinsic value.”
“DeFi tokens’ cash-generating properties allow us to frame discussions about these assets’ worth using traditional valuation methods,” he added.
“As familiar frameworks gain traction and valuation standards coalesce, DeFi assets will gain greater appeal from financial institutions and investors.”
Part of the reason is the dismissive returns on savings offered by the traditional sector.
According to Bankrate.com, the average interest rate on saving accounts in the United States is just 0.06%. Conversely, DeFi projects offer depositors annualized returns anywhere between 1% and 10% — and sometimes even higher — on U.S. dollar-backed stablecoins, such as Tether (USDT), Dai, USD Coin (USDC), etc.
What’s next for Aave?
A strong fundamental backdrop has pushed Aave to new highs, but its ability to continue its uptrend relies on a technical structure.
As spotted by PostXBT, a pseudonymous market analyst, AAVE/USD wants to break above a stern technical resistance level that constitutes an ascending triangle pattern. As long as the pair trades under the said price ceiling, it could face possibilities of a pullback.
Eyes on $AAVE for the daily close…
Close above and we look for the retest to jump in
— Posty (@PostyXBT) August 5, 2021
Cointelegraph’s VORTECS™ Score also suggested a bullish outlook as price bounced off the $300 mark. The VORTECS™ Score is an algorithmic comparison of historical and current market conditions derived from a combination of data points, including market sentiment, trading volume, recent price movements and Twitter activity.
As seen in the chart above, the VORTECS™ Score for Aave rebounded from 64 (orange) toward 80 (green) on Wednesday, suggesting that more upside is likely.
Aave’s price is currently around $350 at time of publishing.