Aave's Dominance: Network Effects in the Decentralized Finance Space

In the Decentralized Finance (DeFi) ecosystem, network effects are often a key factor in determining success or failure. Aave stands out in this regard with its five years of market accumulation, large user base, and industry-leading liquidity. Projects built on Aave can achieve unmatched scale advantages and network effects, which are core competitive strengths that are difficult for other platforms to replicate.

Partners can immediately access mature infrastructure, an existing user base, and ample liquidity, which would typically take years to build independently. This unique advantage is referred to in the industry as the "Aave effect."

Market Position of Aave

Aave is currently the largest protocol in the Decentralized Finance space, with a total value locked (TVL) accounting for 21% of the entire DeFi market, and it holds a 51% share in the lending market. Its net deposit size has exceeded $49 billion. Although these figures are impressive, Aave's true strength lies in its market penetration:

• After a stablecoin project expanded its business on Aave, the deposit amount skyrocketed from $2 million to $1.1 billion in just two months.
• Within weeks of another token project joining Aave, users deposited tokens worth $1 billion, which has now grown to $2 billion.
• The TVL of a certain DAO soared from 65,000 ETH to 255,000 ETH within four months after its token was incorporated into the Aave protocol, an increase of nearly 4 times.

Aave accounts for nearly 50% of the active stablecoin market and is also the main circulation channel for Bitcoin in Decentralized Finance. Notably, Aave has achieved nearly $1 billion in Total Value Locked (TVL) across four major independent blockchain networks, a depth of deployment that is quite rare in the industry.

The Formation Principle of Aave Effect

Although any platform can attract deposits and expand supply through token rewards and yield farming, creating genuine asset usage demand is much more difficult. This is precisely what makes Aave unique.

Data shows that the active borrowing volume on the Aave platform exceeds 18 billion USD, far surpassing the total of other competitors. The assets deposited by users in Aave are either borrowed out or used as collateral to borrow other assets, ensuring that funds are always kept active.

This mechanism creates a positive feedback loop: when new assets are launched on Aave or when teams develop based on Aave, they can all benefit from this continuous demand. Ultimately, all participants can profit from the actual economic activities generated by the large active user base.

This is particularly important for teams developing based on Aave. Aave has undergone five years of market testing, spanning multiple market cycles, and has earned the trust of developers and users. As a major platform managing billions of dollars in funds, Aave's reliability far exceeds that of many emerging protocols.

In addition, developers on the Aave platform are not subject to scale limitations. Compared to other protocols, Aave can support higher limits for deposits and loans, allowing financial technology applications of various sizes (whether targeting retail users or institutions) to thrive robustly on this platform.

Future Outlook

With the upcoming release of Aave V4, the core driving force behind the "Aave effect" will be further enhanced. The new version's architecture will provide developers and users with a wider range of asset access channels and more flexible lending strategy options.

Aave's core value proposition in the Decentralized Finance space is expected to become more prominent in the future, further consolidating its market leadership.