AAVE price has underperformed the market amid rising concerns about the DeFi protocol’s viability in a high-interest rate environment. The token plunged to a low of $55 on Monday, a 42% decline from the highest level this year.
Aave is a DeFi protocol that enables people to earn interest by providing liquidity in its ecosystem. This liquidity is then used to lend money to other people, who are interested in its crypto loans. It is the second biggest player in the DeFi industry with a total value locked (TVL) of over $7.2 billion.
The challenge is that cash is providing bigger returns these days. For example, money market funds in the US have a yield of over 5%. This is in contrast to most coins in Aave, which offer a lower yield than the USD. For example, the deposit APR for WETH is 2.26%, while USDC, USDT, and Dai have yields of 2.81%, 4.45%, and 2.79%, respectively.
Therefore, many people, especially those in the United States, are likely to rotate from crypto to US assets. This partially explains why the US dollar index (DXY) has jumped to over $104. Inflation is also significantly higher than the Fed’s target of 2.0%, which means that rates will likely remain high for some time.
The daily chart shows that the AAVE price has been in a strong bearish trend for a while. It has moved below the descending trendline and is sitting slightly above the important support at $49.90, the lowest level on June 14th and January 2nd. Therefore, there is a chance that the coin will have a bearish breakout in the coming weeks if it drops below this support. This would result in a decline to a low of $40.
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