Do’s and don’ts according to AAVE V3

AAVE V2 marked a defining moment in DeFi history. This version brought several new features to the protocol that helped AAVE continue to grow and, as a result, brought Total Value Locked (TVL) up to date.

However, how this affects the price of AAVE is what fascinates many. Looking at AAVE’s current move, V3 could change that dramatically.

AAVE’s dilemma

Although AAVE is the third largest DeFi protocol, it’s one of those tokens that doesn’t impress in the spot market. The rate of growth is very slow and there are no major developments other than the SUSHI and DPI event on October 29th.

While the AAVE Improvement Protocol (AIP) was being implemented to improve the network, TVL lost $ 6 billion the next day. As of early November, TVL has been bouncing back to the same level of about $ 16.5 billion at press time.

TVL DeFi on AAVE | Source: DeFi Lama

On the spot market, AAVE has not yet broken the declining wedge price at which it has been operating since the market high on October 16.

AAVE descending wedge | Source: TradingView

To up the AAVE and help the price break the wedge smooth, the AAVE V3 could become the perfect tool. The proposal was released last week and aims to bring a lot of new functionality to the log switch.

Some of the key features mentioned in the announcement are:

1. Portal: Useful for seamless migration between V3 marketplaces and other networks.
2. Isolation Mode: Limits exposure and log risk to newly listed assets by only allowing credit up to a certain limit.
3. Cross-chain relief: Users can now seamlessly move their own personal liquidity from the Aave protocol implementation on one network to another.

In addition to the most important highlights, the proposal also offers many other functions. AAVE V3 is also focused on dramatically improving the decentralization of the protocol as well as developing a next-generation Layer 0 DeFi protocol.

How did the church react?

Over the past week, the community has greatly appreciated and accepted this suggestion. In a way, the announcement had a positive impact on AIP SUSHI-DIP again.

While the improvements are likely to benefit the protocol over the long term, it is not yet known whether the market will respond positively.

Investor sentiment AAVE | Source: Santiment

When AAVE V2 was launched in December 2020, AAVE was only listed a month earlier. The price did not change significantly in the following month either.

Only after January 3, 2021 did the price rise 460% on the chart.

Price reaction at the start of AAVE V2 | Source: TradingView

While not much is expected of a 460% rally thanks to AAVE V3, it might at least be enough to pull AAVE off the declining wedge.

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