The crypto world has been bearish for quite some time now, but a popular crypto analyst says decentralized borrowing and lending protocol Aave will rise once the bear run is over.
"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 thecrypto token sticker price has declined significantly, which has made it more appealing to investors who don't pay attention to market cap."
Guy further added that:
"On that note, I couldn't help but notice the comments during the last video arguing that crypto 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 believes the launch of the new crypto stablecoin, GHO, will cause the demand for Aave to increase.
He believes there's not much demand for the AAVE defi token. Its only uses are in governance and staking, which offers an admittedly attractive reward compared to alternatives but with higher risks too.
The silver lining of the crypto coin is that most of its supply still remains in circulation, meaning there's little sell pressure left and it seems like this could be why they are allocating interest rates from their GHO stablecoin to the crypto Treasury. The highlighting of this point ensures the protocol's longevity and reduces sell pressure for crypto tokens.
Guy told his subscribers that the introduction of a stablecoin should also increase demand for crypto since it will make it possible to mint at near-zero interest rates. The drawback is that a higher number of crypto staked might lessen the overall stake rewards, which could weaken its second demand driver.
With a rise in interest rates, an increase in circulating supply due to the recent developments, and other factors like energy shortages, it is no surprise that Aave lost 70% of its value in January. Which later resulted in $40 million worth of potential sell pressure.
The current downturn in the market is expected to have minimal impact on prices because of Guy's expectations that it will change once this bear trend has passed.
"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 crypto token rise to astronomical heights when the next bull market comes around, especially if the GHO stablecoin gains serious adoption."