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Amid Token migration, AAVE trades at a premium

Photo of: Janeth Diamond
by Janeth Diamond

DeFi lending protocol Aave has begun its token migration and supply cut following a governance vote which was virtually all in favor. The new token has been trading at a premium against the old one. Token Migration is a process by which the token holders’ balances are transmitted from their Ethereum wallets to the given project’s new compatible wallets. In theory, when the switch has been made, tokens have effectively moved from one blockchain to another. But it is important to understand that the token migrations are not exclusively linked to live blockchain launches, it can also happen when a project shifts from one protocol to another. 

Aave also modified its tokenomics roadmap on July 1’st when it had put forward the proposal of cutting the supply by a 100 times and converting LEND tokens into AAVE. The voting for the same was done at the end of last month, and shortly after that, the due diligence of the migration process started. So, the supply of LEND will be squeezed with every 100 LEND tokens being converted into one AAVE. 

The migration is an important move because it aims at harmonizing the incentives of the token holders directly with the internal interest of the protocol. This means providing protection against any kind of paucity and rewarding the holders with staking opportunities.

The upgrade process also includes Aave Safety Module (SM) that enables staking rewards to go up to 11% in a year. The new AAVE tokens held here will second as a reserve which will protect the protocol from different risks and failures like unexpected losses, oracle failure, and the likes. This brings additional risk to users who carry the risk of losing nearly 30% of the assets locked in the SM if there is a shortfall event decreasing their position. But, in the initial phase, the speaker’s positions will not be cut. This will incentivize more holders to migrate and stake their AAVE.

The much-anticipated upgrade has already shown some impact on key metrics. 

IntoTheBlock monitors transactions of over $100,000 that approximates both large and institutional investor activity. LEND transactions as can be seen below have recently reached a new all-time high on October 5th. With the migration process already started on October 2, large transactions for LEND increased dramatically. The migration tracker helps in verifying that these transactions were indeed to upgrade LEND to AAVE. Within a four-day period, more than a third of the total supply of LEND was migrated to AAVE which showed the strong support of Whales in the AAVE ecosystem. 

Source: IntoTheBlock

We know that the large transactions have been spiked in the last few days after the migration but even the address activity improved immediately. LEND active users tally reached 2.66k which is the third highest in 2020. The zero balance addresses also spiked to 2,000 on the same day pointing towards the possibility of a large percentage of LEND holders transferring their tokens to receive the new AAVE token.

AAVE continues to make fundamental progress and migration is just the first step!