Exclusive Interview with Aave Founder: Aiming to Build a DeFi Ecosystem that Completely Surpasses MakerDAO

Author: Liam Kelly, DL News

Compiled by Felix, PANews

Over the past seven years, Aave Labs has shaped its brand by creating a sleek lending platform. With a stable Decentralized Finance banking business, Aave survived the Bear Market of 2022.

Now, the co-founder of Aave, Stani Kulechov from Finland, is building Aave into a DeFi ecosystem. This includes a stablecoin called GHO, an encryptionWallet called Family, and a social media network Lens Protocol that is seeking a $50 million financing.

These businesses, along with Aave’s lending business, are now part of a new London-based parent company, Avara.

These expansion measures by AAVE have intensified competition with several other Decentralized Finance institutions.

Kulechov said, “It is clear that the significance of the Decentralization system is always to keep the door open to competitors.”

One of the most notable is MakerDAO, the stablecoin issuance company that has been in sync with Aave for years. Aave has added new businesses and so has Maker.

In order to expand the business scale, Kulechov is replacing the simple model with a more complex ecosystem. By building an all-in-one trading platform, Avara will meet the needs of DeFi newcomers and seasoned encryption users.

Kulechov said, “Every person on Earth, regardless of the language they speak, the country they are in, or the place they are in, has their own social capital. If we can solve the problem of online ownership, then we can fundamentally unleash more long value.”

So far, Kulechov and the Aave team have proven their ability to unlock value.

According to TokenLogic data, Aave has generated approximately $100 million in revenue in the past 30 days by charging users for borrowing, liquidating loans, and depositing fees.

DefiLlama data shows that in the past 12 months, the total TVL of Aave has doubled to $11 billion long. Aave, which operates on more than a dozen different blockchains, has surpassed MakerDAO this year to become the third most valuable Decentralized Finance project.

Aave’s TVL over the past three years; Source: Decentralized Finance Llama

Drew Osumi, co-founder of venture capital firm Number Group, said that building a ‘walled garden’ for Aave users may sound counterintuitive, but it makes sense.

Drew Osumi said, “If Avara has social, Wallet, lending, and Stable Coin functions, I think for those who are completely unfamiliar with Cryptocurrency, they will feel that this is an easy entry experience”.

“This grand plan feels like building an unlicensed, Decentralization-enabled Meta, allowing users to truly evaluate based on market value.”

However, why do we still need another social media platform?

Kulechov said, “Our main idea may not be to replace Twitter, but to build an open sharing network that anyone can build, and now there are users.”

Lens Protocol allows developers to build applications similar to Instagram and inject encryption functionality into them. Lens satisfies the needs of Non-fungible Token collectors by converting profile photos and usernames into Non-fungible Tokens, and also allows Decentralization autonomous organizations (DAOs) to raise key issues and vote directly on Lens for their communities.

Competitors in Decentralized Finance

Since the ICO era in 2017, Aave and Maker have been the cornerstones of Decentralized Finance. Both have experienced a rapid rise in Cryptocurrency and market crashes. While competing with each other, they also often collaborate. This competition has reached its peak in the Stable Coin race.

Makerissuance DAI, which is the oldest decentralized Stable Coin in Decentralized Finance. And Aave started issuing its own Stable Coin GHO in July 2023.

Stablecoins are used throughout Decentralized Finance. Source: Decentralized Finance Llama

Both stablecoins are pegged to the US dollar and backed by over-collateralization with other cryptocurrencies, such as minting more than 1 dollar’s worth of cryptocurrency in Ethereum, etc.

According to analysts at Bernstein, the Stable Coin market is expected to rise to $30 trillion in the next five years.

Cross-Chain InteractionprotocolSocket Protocolriseresponsible personLito Coen said, “Stablecoin is the biggest market opportunity in the encryption field. If you enter another market after borrowing, then stablecoin is the most logical choice.”

Extreme Fluctuation

Aave competes through GHO, as Maker is launching its own lending protocol, Spark, in 2023.

Lito Coen said, “GHO is very meaningful, especially when one of the largest over-collateralization stablecoins competes directly with Spark.”

In April of this year, when the Maker community proposed to support DAI with a new, untested Stable Coin on the Ethereum blockchain platform Ethenaissuance, the battle lines became even clearer.

This asset, called USDe, is backed by the US dollar, unlike GHO or DAI. It is not over-collateralized but supported by ETH positions and short positions on the ETH exchange. If the price of ETH drops, these positions will make money. This is a novel design mechanism but has not yet been tested in extreme markets.

For Aave, the emergence of the Ethena market means huge risks. If USDe depreciates due to a market collapse, people will worry that DAI will also become unanchored. Because Aave holds over $130 million worth of DAI, this is a risk that the Aave community cannot afford.

In April this year, Marc Zeller, the founder of the Decentralized Finance governance project called “Aave Chan Initiative”, proposed to adjust the Loan-to-Value ratio (LTV) of DAI to 0% on all Aave deployments and remove sDAI incentives from the Merit program.

Kulechov agreed.

Kulechov wrote on the Aave forum: ‘If the outcome is favorable, the off-line process should be started immediately.’

Kulechov attributes this to Risk Management rather than direct competition. “People’s risk awareness of DAI has significantly increased. If the risk increases, the best approach is to take the most conservative approach.”

At the same time, Lens Protocol is facing another competition from the encrypted social media protocol Farcaster. Both provide many of the same functions, but Lens stores more on-chain activities (such as likes and follows) on the Block, while Farcaster focuses more on speed and user experience.

Farcaster is currently far ahead, with nearly 600,000 users, while Lens has only 430,000. Farcaster recently completed a $150 million financing round, with a valuation of $1 billion, led by Paradigm, with a16z, USV, and other top venture capital firms participating.

However, the sustainability of these two social media projects remains to be seen.

Cross-Chain Interaction protocol Socket Protocol rise Lito Coen, the main person in charge, said: “For me, the most uncertain thing is Lens. This is a completely different track in the field of encryption, and overall, there are few experiences to draw on.”

New Financing

In June this year, Lens is undergoing a new round of financing with a valuation of $500 million.

Lito Coen said: “I very much appreciate the initiative taken by Kulechov. I think few teams have big ideals and can try to expand their business.”

Although Decentralized Finance has all the novel technologies and business models, Kulechov’s move indicates that traditional product development and new markets are key to the rise.

Kulechov said, “We like to go from building infrastructure to thinking about what these businesses are and what interfaces can be built.”

Related reading: From ETHLend to Aave V4, Decentralization lending fully evolved