While Aave has established dominance on EVM-compatible chains, Aave lacks deployments on any non-EVM compatible chains. With the emergence of non-EVM chains and their growth of DEFI activity and Total value locked, we believe an expansion to non-EVM chains is important and necessary for Aave to remain dominant.
Figure 1: Non EVM Total Value locked growth
Aptos has experienced rapid growth in both TVL and on-chain activity, as evidenced in Figure 2 & 3. The on-chain TVL has surged from $119.9 million to $545 million YTD, showing impressive strength relative to other projects based on TVL growth.
Figure 2: Total Value Locked Growth (Native token denominated)
Figure 3: Total Value Locked Growth (USD denominated)
Moreover, Aptos’ secure architecture due to their Move language and its high TPS capabilities make the chain resilient and reliable for DeFi activities, reinforcing its suitability for Aave’s expansion.
Aptos Landscape:
In the current Aptos lending landscape, Aries Market, Echelon Market, and Aptin Finance are the three major platforms dominating the Total Value Locked (TVL) and lending activities. Lending dominance on Aptos is strong and continues to increase, with 55% of the chain’s TVL being attributed to lending platforms.
Figure 4: Total Value Locked Growth Grouped by Sector
The TVL breakdown for the protocols:
- Aries Market: $268M TVL
- Echelon Market: $72M TVL
- Aptin Finance: $23M TVL
The distribution of supplied assets across these platforms is shown in Figure 5, highlighting the prominence of stablecoins in lending activities and large stAPT and APT markets.
Figure 5: Market Size for Various Assets
Further analysis of user behavior on Aptos lending platforms indicates that stablecoin markets, such as zUSDC and zUSDT, have higher APYs compared to market averages (14.4% for zUSDC and 13.8% for zUSDT).
Figure 6: Lending Platform APY comparison
Figure 7: Scatter Chart of Supply markets by Asset type
However, unlike other lending platforms that often have large market sizes driven by users farming incentives but lack actual utilization of supplied assets by borrowers, Aptos lending platforms demonstrate healthy utilization. The top pairs on these platforms achieve near-optimal utilization rates, reflecting a more balanced and effective lending environment.
Figure 8: Asset Utilization of Assets on Lending markets
What stands out is the low utilization of stAPT, suggesting that the asset is being primarily utilized for leveraged looping strategies. Additionally, the willingness of borrowers to borrow stablecoins at high APRs indicates they might be engaging in looping strategies as well.
While high incentive APRs encourage people to supply assets, they also facilitate two distinct types of looping strategies:
- Staked Aptos Looping: Given that the borrow cost of APT is less than the reward rate of stAPT, it is profitable to loop stAPT against APT. Currently, stAPT yields 9.2%, whereas APT borrow costs are below 1%.
- Stablecoin Looping: When the supply APR exceeds the borrow APR due to additional incentives, it becomes profitable to loop stablecoins to maximize yields.
These strategies are unique as they offer a new growth factor for lending platforms. In addition to facilitating traditional lending behaviour, they provide a new revenue source for these platforms. Ultimately, these strategies create positive feedback loops within the lending platform:
- Farmers: Earn higher yields due to looping strategies, allowing them to leverage the stAPT or USDC yield that they earn.
- Depositors: The demand for APT or stablecoins from borrowers needed for these strategies enables Lenders to earn higher yields from supplying their assets.
- Lending Platforms: Earn revenue through the reserve factor, benefiting significantly as they receive a percentage of interest paid by borrowers.
By enabling these strategies, lending platforms can enhance their growth, attract more users, and improve overall profitability.
To highlight the popularity of these strategies: The total supply of stablecoins on Aptos lending platforms is $181M, compared to a total stablecoin supply of $117M on Aptos. Staked APT looping also shows significant potential due to the high native yield of liquid staked APT (9.24% on stAPT). Therefore, we expect Aave to benefit from these looping strategies on Aptos.
Since Aptos is a relatively new ecosystem, lending platforms are offering large incentives to attract capital and enable these strategies. Given the substantial APT commitment from the Aptos Foundation, Aave is predicted to have the largest incentives compared to its competitors. We predict that this is likely to lead to an influx of capital, with funds flowing into pools until APRs stabilize relative to competitors. We also believe the 2 million in APT incentives are substantial enough to attract capital inflows from other chains due to the high stablecoin APRs. Once liquidity is attracted, it is expected to remain sticky due to Aave’s established position as a market leader.
Figure 9: Annualized Incentive Spend
We believe that a non-EVM deployment presents a significant opportunity, and Aptos is the right chain for Aave to deploy on. Aptos not only has the infrastructure required to enable safe and efficient lending but also has a rapidly growing on-chain landscape that is well-suited for DeFi. The incentive structure provided by the Aptos Foundation will allow Aave to attract substantial liquidity and capture significant market share and revenue.
Additionally, comments from the Aptos Foundation and AaveLabs indicate that significant effort has already been put into core processes like contracts, audits, and Chainlink price feeds. Needless to say, we are extremely excited for this deployment and the proposal has our support.