AAVE, the governance token of the Aave decentralized lending protocol, has recently seen an impressive rally, outperforming the broader crypto currency market by 45% over the past month. This surge is attributed to a combination of significant whale buying activity and a proposed reform to the token’s liquidation process.

Whale Activity Fuels AAVE’s Price Surge

Recent data from Look on Chain reveals a massive buying spree by a whale, who spent 4,000 $st ETH, worth approximately $10.4 million, to acquire 77,270 AAVE tokens at $135 each within a single day. This substantial purchase highlights ongoing whale interest in AAVE, even after a strong rally in the token’s price.

As of the latest update, AAVE is trading at $134.24, with a market cap exceeding $2 billion. The token’s impressive performance has placed it ahead of all top 100 cryptocurrencies by market cap, including major players like Bitcoin and Ether. In comparison, Helium’s HNT, despite gaining 26% last month, still lags behind AAVE’s performance.

Impact of the Fee Switch Proposal

In July, Marc Zeller, founder of the Aave-Chan Initiative, proposed a fee switch mechanism. This proposal aims to redirect a portion of the platform’s net excess revenue to key ecosystem participants and use it to buy back AAVE tokens from the secondary market. Joshua de Vos, research lead at CC Data, noted that the speculation around activating the fee switch and buying back tokens has significantly boosted market sentiment.

The potential activation of this fee switch is seen as a major catalyst behind AAVE’s recent price rally, with expectations of new incentives for holding and staking AAVE driving investor interest.

Reforming AAVE’s Liquidation Process

A new proposal, known as the Umbrella proposal, seeks to reform the existing “seize and sell” loan liquidation process. This mechanism has been criticized for negatively impacting AAVE’s price action. The proposal suggests replacing the current system with a “seize and burn” strategy, which involves using AAVE’s GHO stable coin and a Tokens that represent assets deposited in the protocol.

Katie Talati, head of research at Arca, explained that the Umbrella proposal aims to reduce sell-side pressure on AAVE by utilizing a variety of assets to cover bad debt, rather than relying solely on the AAVE token. This change is expected to alleviate some of the negative price pressures associated with loan liquidations.

Web3 agency Deelabs also supports the idea that implementing a buyback strategy could create substantial bullish pressure on AAVE. The Umbrella proposal, by mitigating the negative effects of loan liquidations, is anticipated to attract more institutional interest and bolster AAVE’s market performance.

Aave’s Leading Position in the Industry

In addition to the positive price developments, Aave has demonstrated strong financial performance in recent weeks. According to data from Token Terminal, Aave has generated over $27 million in fees over the past four weeks, surpassing other lending and borrowing protocols in terms of revenue and fees earned.

Conclusion

The recent surge in AAVE’s price, driven by significant whale buying and the introduction of promising proposals, underscores a growing bullish sentiment around the token. As AAVE continues to outperform the broader crypto market and lead in revenue generation, its evolving tokenomics and strategic initiatives are likely to maintain investor interest and support further price appreciation.