As decentralized finance attracts headlines, this project is attracting customers too
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July 13, 2020
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By the CoinDesk Markets Team
Edited by Bradley Keoun
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TODAY:
  • Prices: Bitcoin (BTC) $9,280 (-0.35%) | Ether (ETH) $243 (+0.10%)
  • The decentralized money market Aave's token, LEND, is up 12-fold this year, the most among digital assets with a market value of at least $200 million. Cryptocurrency analysts say the project has seen strong uptake in the fast-growing realm of decentralized finance, or DeFi. 
  • What's Hot: The developer hoping to make your bitcoin transactions more private, and an in-depth look at China's craze for Filecoin.

MARKET MOVES

There’s one thing that all investors like: doubling, tripling, or even quadrupling their money. How about a 12-fold increase? 

That’s what traders have reaped this year from the decentralized lender Aave’s LEND token, up about 1,200% on a year-to-date basis.

Other tokens from the realm of decentralized finance, known as DeFi, are up by triple-digit percentages, including Synthetix’s SNX, Thorchain’s RUNE and Kyber’s KNC. Bitcoin, the biggest cryptocurrency by market capitalization, is up just 28%. 

It would be easy to write off such outsize gains as just another example of the speculative hype of cryptocurrency markets, where big price swings are common. But in the case of the LEND token, the price rise may have been fueled by an increase in actual usage. 

Some $158 million of value have been deposited as collateral in Aave’s lending protocol, just six months after the project went live in January. By comparison, Compound, another decentralized lender, had just $27 million in its protocol at its six-month mark in March 2019. Compound has since gone on to increase the figure, known as total value locked, by 25-fold to $684 million, to become the largest lending protocol, according to DeFi Pulse, which tracks the industry.  

“The main reason I suspect LEND has received so much attention is simply because, after launching the mainnet early this year, usage on Aave has grown incredibly fast,” Jack Purdy, an analyst with digital-asset research firm Messari, told First Mover in an email. 


Year-to-date performance of Aave's LEND token compared with Bitcoin. (CoinDesk Research)

Last week, Aave rolled out a new feature, “credit delegation,” which effectively allows users to set up credit lines that could then be drawn down by other users, in a form of peer-to-peer lending. Under the program, investors can deposit stablecoins – digital tokens backed by U.S. dollars or other government currencies – and then delegate the right to borrow against that collateral to another user. 

The delegator can set terms of the loans, such as interest rates and amount of capital that can be drawn. Since the ultimate borrower isn’t posting collateral via the platform, the delegator is bearing most of the risk, and might be able to charge higher interest rates. 

“Aave's introduction of credit delegation is groundbreaking,” Su Zhu, CEO of the Singapore-based digital-asset fund Three Arrows Capital, told First Mover in a Telegram message.  

Aave CEO Stani Kulechov told First Mover in a Discord chat that the “market capitalization of LEND has been following mostly our protocol growth.”

“Most of the traction comes due to our wide asset selection that you can use as collateral and the ability to borrow flash loans without collateral, which has become a popular tool,” Kulechov wrote. 

In a Tweet last week, Kulechov wrote that credit delegation could help push DeFi into “financial debt markets worldwide,” making it a “liquidity backbone.” Borrowers could be cryptocurrency exchanges, market makers, lenders, institutions, businesses, non-governmental organizations or governments, he wrote.


Schematic showing how Aave's "credit delegation" feature works. (Aave)

Not that LEND isn’t benefiting from speculation at all: Some traders might be extrapolating how Aave’s usage might increase going forward, giving the token’s price an additional lift. 

Aave is positioned squarely within the fast-growing DeFi industry, and some industry executives that these autonomous or semi-autonomous systems could ultimately challenge or displace banks, brokerage firms, insurance companies and money managers.   

"Overcollateralized lending is capital inefficient, and uncollateralized lending has been one of key missing pieces to DeFi lending,” Messari analysts noted in a July 7 blog post. “Assuming it works, it has the potential to significantly scale DeFi lending."


– Omkar Godbole, Markets Analyst
 
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TWEET OF THE DAY

BITCOIN WATCH

BTC: Price: $9,280 (BPI) | 24-Hr High: $9,349 | 24-Hr Low: $9,170

Trend: Bitcoin jumped 2.53% in the seven days to July 12, snapping a four-week losing streak, which was the longest since November 2019. 

The weekly gain confirmed a bullish breakout from a period of indecision signaled by the preceding week's doji candle. As such, one may expect the cryptocurrency to challenge resistance at $9,920. That level is currently housing a trendline connecting the December 2017 and June 2019 highs. 

The daily chart MACD histogram, an indicator used to gauge trend strength and trend changes, is supporting the bullish case with an above-zero reading. 

Options traders, too, are anticipating a bullish move, and look to be buying call options or bullish bets, as suggested by the negative one-month put-call skew. The three-month and six-month skews are also hovering below zero, according to Skew, a crypto derivatives research firm. The metrics indicate that calls are in greater demand that puts, or bearish bets. 

The bullish case, however, would weaken if the cryptocurrency finds acceptance below $8,905, the low seen in the first week of July. Acceptance under that level would shift the focus to the 50-week moving average at $8,599.

At press time, bitcoin is trading largely unchanged on the day at $9,280.
– Omkar Godbole, Markets Analyst
 

The CoinDesk 20: The Assets That Matter Most to the Market

Digital assets aren’t what they used to be. As more people learn the fundamentals and grasp the potential for high returns, cryptocurrencies are emerging as a new asset category.

Introducing the CoinDesk 20, our list of the 20 digital assets that impact and define the market. From our new dashboard, uncover insights through price pages, key metrics, news and industry analysis, as well as video interviews with founders and key developers of the underlying technology. Dive into our freshly revamped practical guide to the assets that matter most to the market.

WHAT'S HOT?

CoinSwap and the Ongoing Effort to Make Bitcoin Privacy ‘Invisible’ (CoinDesk) 
A developer known for working on enhancing Bitcoin privacy has set his sights on a new project he hopes will “massively improve” how we keep our transactions private.

Inside the Craze for Filecoin Crypto Mining in China (CoinDesk) 
As Filecoin inches closer to a blockchain mainnet launch – after several delays since its $200 million raise in 2017 – investors in China are again speculating heavily on the network’s mining hardware and its token prices. 

Political Director For Ron Paul Quietly Mines Bitcoin And Builds New Blockchain Company (Forbes)
Craig Bergman, the former political director for Ron Paul's 2008 presidential campaign, now heads Vortex Blockchain Technologies and is mining bitcoin and other cryptocurrencies.

Sale of the Century: The Inside Story of Ethereum’s 2014 Premine (CoinDesk)
Read an excerpt from Camila Russo’s “The Infinite Machine,” an in-depth history of Ethereum, which goes on sale July 14.
– Sebastian Sinclair, Reporter
 
Disclaimer: The information presented in this message is intended as a news item that provides a brief summary of various events and developments that affect, or that might in the future affect, the value of one or more of the cryptocurrencies described above. The information contained in this message, and any information liked through the items contained herein, is not intended to provide sufficient information to form the basis for an investment decision. The information presented herein is accurate only as of its date, and it was not prepared by a research analyst or other investment professional. You should seek additional information regarding the merits and risks of investing in any cryptocurrency before deciding to purchase or sell any such instruments.
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