Aave Turns 5 Today: How Strong Will AAVE Be in 2025?

Aave has been with us for over five years now. Aave is a decentralized non-custodial liquidity protocol where users can participate as suppliers or borrowers.

Aave has been with us for over five years now. Aave is a decentralized non-custodial liquidity protocol where users can participate as suppliers or borrowers. Staking. Swapping. Aave and its AAVE token are integral to the DeFi ecosystem. Today we help highlight AAVE to our readers. How strong will AAVE be in 2025?

Many consider MakerDAO—now Sky—to have played a foundational role in shaping today’s DeFi ecosystem. In 2017 Andy Milenius, then of MakerDAO, revealed what we know as the Dai Stablecoin. This is what many market participants consider to be DeFi’s inception.

Not long before Milenius’ famous speech in Cancun, Stani Kulechov created ETHLend. ETHLend later evolved into Aave, with Aave Labs leading its development.

Is AAVE a Governance Token?

There are several ‘governance tokens’ our readers may be familiar with. Last year we shared a story about the Wormhole $W token, a governance token. AAVE is also a governance token. Being a governance token is important to institutional investors. It is not quite the same as a utility token. They both share characteristics. But with a governance token, holders must vote. Whereas with utility tokens, this is just another option but not essential.

In May 2023 the Bank for International Settlements published insights regarding DeFi regulation. In the document the authors explained how “the increase in the use of stablecoins as collateral or bridge between DeFi and traditional finance is a potential channel of risk transmission to the traditional financial markets.” They specifically pointed to leverage-driven procyclicality in DeFi lending services. Something that Aave is also involved with.

In July 2024 several leading representatives from the Bank for International Settlements published “Why DeFi lending? Evidence from Aave V2.” The document may not reflect the views of central bankers, as their disclaimer states. However, it gives an insight into how central bankers view protocols like Aave and the wider DeFi ecosystem. The authors summarize that “large-scale investors (in DeFi protocols) engage relatively more than retail investors in DeFi borrowing for governance motives, such as influencing protocol decisions and accruing more significant governance rights.”

This would preclude that the AAVE token is attractive to large and institutional investors. To highlight this point, in October 2024 Grayscale launched the Grayscale Aave Trust, a fund offering investors exposure to the AAVE. “Shares of the Trust are designed to track the AAVE market price.” Large investors now have a major opportunity to gain exposure to AAVE—similar to how buying MicroStrategy shares provides indirect exposure to bitcoin.

What is the GHO Token?

A more native stablecoin? That is what Kulechov believes that the GHO token is. It is a stablecoin. It has plenty of competition with the likes of Dai, Tether, USDC, USDe or USDS (the new Sky Dollar). According to DefiLlama GHO is in the Top 20 stablecoins by market cap. $180 million at time of writing.

The GHO token was first launched in July 2023. It is backed by assets supported on Aave. It is pegged to $1. The income generated by GHO comes from interest charged to borrowers of the currency on the Aave protocol. It means more funds to hire risk managers and security experts to support AAVE. It could also mean a rise in the value of the AAVE token by default. This is because 100% of repaid interest from borrowers will be redirected to the AaveDAO, contributing to the DAO treasury. The more popular the GHO token becomes, the more value it will bring to the AAVE token presumably. All this while addressing the concerns of central banks.

Staking with AAVE

On Coinbase staking has become popular with retail investors. Today the AAVE token is estimated to return approximately 4.63% APR. Slightly lower than the 4.82% offered if you go direct to Aave. GHO Tokens have other ways they can be used to generate income. AAVE can be used as collateral to borrow GHO with which to get higher rewards leveraging other stablecoins. This can be a very lucrative process if you know what you are doing.

It’s this and projects like this that have added to the reputation and respect that Aave has accrued over the years. As a decentralized money market protocol, Aave enables users to borrow and lend their on-chain digital assets. Bankers remain at odds with the lack of credit scoring, KYC or a personal touch that comes with Aave. However, as the largest asset managers warm to the space. And the central bankers keep discussing the space. There is a lot of hope that Aave and its’ token AAVE could play a dominant role in the future of both Digital Assets and DeFi.