Aave in-depth research report: How is the DeFi lending king made?

The first part of the research report
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▌1. Core investment logic
Aave is located in a broad track, and the overall quality of the project is very good. It is a DeFi white horse project worthy of long-term attention. The specific investment logic is summarized as follows:

The crypto lending where Aave is located is a good track with rapid development and huge market space. In the future, it will gradually move from inside the circle to outside the circle, from individuals to institutions, and will access more funds and financial needs in the future.


The existing business has developed rapidly and has surpassed the original industry leader Compound, and is expected to continue to widen the gap and continue to lead DeFi lending


With an excellent team in the industry, while maintaining a leading position in innovation, it also attaches great importance to the safety of product strategies and risk prevention and control, and can adjust the direction in time after the project enters the bottleneck


A healthier economic model among the top projects of its kind


Leading the industry in compliance


Many business lines such as flash loan, credit authorization, and institutional services have great room for development, and the project has a potential second growth curve
▌2. Valuation
From the perspective of relative valuation method, Aave's valuation is at a historically low level; from a horizontal comparison, Aave's valuation is in the middle of similar head projects. Considering the competitive advantages of the project itself, the valuation is within a reasonable range.

▌3. Main risks
Divided into internal and external risks, see [Business Analysis] - Internal and External Risks for details.

Aave

Section 2 Basic Information of the Project
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▌1. Project business scope
Aave is an open money market protocol. Lenders (liquidity providers) provide liquidity by depositing assets into Aave’s shared pool of funds, and borrowers can freely borrow from Assets are lent from the pool.

If there was a business model for Aave to find in the real world beyond the blockchain, it would be banking. But as the blockchain version of a bank, Aave's business is far sexier.

Aave currently provides lending services on Ethereum and the Ethereum-based Polygon (formerly Matic).

▌2. Project history and development
ETHLend stage
The predecessor of Aave was ETHLend. In 2017, the project raised more than 16 million US dollars worth of eth through ICO and launched a decentralized lending application, hoping to achieve decentralized peer-to-peer lending matching through smart contracts. According to the team's product vision, both borrowers and lenders can post their needs on the platform and customize parameters such as loan interest rates, collateral types, and collateral asset ratios. Borrowers and lenders can search for suitable orders directly on the platform to match.

Sound familiar? Yes, that is the first-generation P2P lending model that once became popular in my country. Some people place an order to lend money, and those who want to borrow place an order.

ETHLend is the encrypted currency version of P2P, but due to the lack of standardization of the product, the demand of the borrower and the lender is too different, and the interest rate and amount of the borrower and the lender are not easy to match, which eventually leads to a bleak actual business volume.