FEB 23, 2022 • 5 Min Read
DISCLOSURE: DELPHI VENTURES HOLDS A POSITION IN FRIKTION AND LUNA. MEMBERS OF OUR TEAM ALSO HOLD AAVE AND GNO AND MAY HAVE RECEIVED AIRDROPS FROM X2Y2 AND LOOKSRARE. THESE STATEMENTS ARE INTENDED TO DISCLOSE ANY CONFLICT OF INTEREST AND SHOULD NOT BE MISCONSTRUED AS A RECOMMENDATION TO PURCHASE ANY TOKEN. THIS CONTENT IS FOR INFORMATIONAL PURPOSES ONLY AND YOU SHOULD NOT MAKE DECISIONS BASED SOLELY ON IT. THIS IS NOT INVESTMENT ADVICE.
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[Excerpt from our Aave V3 Pro report]
Aave is currently the fourth largest DeFi protocol with ~$15bn in TVL, equating to more than a 6 fold increase since the beginning of 2021. This growth is due, in no small part, to their cross-chain expansion efforts on Avalanche and Polygon, where it has cemented itself as the leading money market on both chains. The team will soon deploy on Arbitrum while also setting their sights on Boba, Optimism, and Starkware. With the imminent launch of Aave v3, it wouldn’t be surprising to see them launch on a few other chains either to continue amassing liquidity. This brings us to the first key feature of Aave v3: Portals.
Below, we’ve provided a sample scenario for how this will work. Consider a user who wants to bridge USDC from Ethereum to Avalanche via the Connext bridge. If Connext doesn’t have enough liquidity to fulfill the transaction on Avalanche, it will tap into Aave’s liquidity on Avalanche by minting unbacked aUSDC on behalf of the user and withdrawing USDC from Aave on Avalanche. Subsequently, Connext will periodically collect the USDC from Ethereum to settle the debt incurred from minting unbacked aUSDC on Avalanche. The following diagram illustrates how the process works.
In the event that liquidity becomes scarce on Avalanche, Aave’s interest rate computation module will move interest rates up on Avalanche to ensure people are incentivized to deposit. Since Portals is not a trustless feature (yet), Aave’s governance is also expected to introduce a credit limit cap, and only reputable protocols will be whitelisted to avoid introducing too much risk into the system.
If risks are properly managed, Portals is most definitely a net positive for Aave, liquidity providers and bridge protocols. A new business model should arise from this development, as bridge protocols provide the infrastructure while Aave v3 provides the liquidity that is needed to power that infrastructure instead of having to perpetually subsidize liquidity with token emissions.
Here’s a dank meme highlighting the difference between the two different liquidity sourcing models.
As the multi-chain narrative takes shape in 2022, Aave is well positioned to expand its total addressable market to bridging protocols like Synapse, Hop Protocol, etc., in a addition to users of its flash loan product. In terms of monetization, two different fee models are currently under discussion in Aave’s governance forum. You can check the thread out here to stay up to date with the discussion.
[Excerpt from our latest DAO Insight)
Friktion Launches Segmented Risk Vaults
Introducing⚡ HIGH VOLTAGE ⚡ – Friktion’s supercharged Volts. Earn higher yields on SOL + you
favorite cryptos. How this is possible WITHOUT token emissions? Friktion Volts leverage the inherent risk properties of crypto assets👇 Get started (1/🧵)
http://app.friktion.fi/income— Friktion² (@friktion_labs) February 23, 2022
LFG Raises $1B as UST’s Forex Reserve
1/ The long awaited [REDACTED] 💎3 is here!
📣 The Luna Foundation Guard (LFG) has closed a $1 billion private token sale to establish a decentralized $UST Forex Reserve denominated in $BTC! 📣
🧵👇
— Terra (UST) 🌍 Powered by LUNA 🌕 (@terra_money) February 23, 2022
Tether Reduces Commercial Paper Holdings
Tether said it shows a 21% decrease in its commercial paper holdings over the prior quarter and an increase in the group’s investments in money market funds and treasury bills as well as A-1+ commercial paper holdings.
https://t.co/SRZYju8Yjb— Wu Blockchain (@WuBlockchain) February 23, 2022