AAVE, a leading decentralized finance (DeFi) protocol, has seen significant price fluctuations in the past 24 hours, even as the broader crypto market maintains a positive outlook. Despite large investors unloading substantial amounts of AAVE, spot traders have been quick to step in, engaging in considerable buying activity that could signal a short-term price increase for the asset.

Spot Traders Countering Whale Sell-Offs

In the past 24 hours, large holders, often referred to as “whales,” have liquidated around 4,500 AAVE tokens, amounting to approximately $830,000. Such large sell-offs typically exert downward pressure on the price, creating bearish sentiment in the market. However, spot traders have reacted swiftly, buying up significant amounts of AAVE, with $2.39 million in purchases recorded over the past four days. This figure is four times the amount that was sold by whales, showing that retail traders are actively stepping into the market.

Recent data from Coinglass reveals that the netflows for AAVE have turned negative during this period. This suggests that traders are not just flipping the token for short-term gains, but are also likely holding onto their AAVE tokens for the long haul. A large portion of these tokens has been moved to private wallets, indicating a more confident, long-term view of AAVE’s value. The combination of this strong buying pressure from spot traders and the shift in sentiment hints at the possibility of a short-term price rally for AAVE.

AAVE Surpasses Lido in Total Value Locked

Amidst these market shifts, AAVE has also achieved a significant milestone. It has surpassed Lido in total value locked (TVL), reaching $18.43 billion in TVL, which puts it ahead of Lido by $450 million. This achievement underscores AAVE’s growing dominance in the DeFi space, reflecting an increasing amount of liquidity flowing into the protocol. This surge in liquidity could fuel further bullish momentum for AAVE, driving its price higher in the coming days.

Contrasting Sentiment in the Derivatives Market

While spot traders are showing optimism, the derivative market is signaling a more cautious outlook for AAVE. Open interest in AAVE contracts has surged to $239.12 million, indicating that there is a rising number of unsettled contracts. However, this alone doesn’t provide a clear market direction. When considering the drop in the long-to-short ratio to 0.909, it becomes clear that sellers now have the upper hand in the derivatives market. This shift in sentiment suggests that derivative traders are largely bearish on AAVE, anticipating price declines in the short term.

In addition, the negative funding rate is another indication of bearish sentiment, as short traders are paying premiums to hold their positions, putting further downward pressure on AAVE’s price in the derivatives market.

Outlook for AAVE

Despite the bearish signals coming from the derivatives market, the strong buying activity from spot traders, coupled with the growing liquidity flowing into AAVE, points to a potentially bullish outlook for the protocol. With AAVE now leading the DeFi market by TVL, it continues to capture the attention of both retail and institutional investors.

To break out of its current price dip, AAVE will need to maintain the strong inflow of liquidity and overcome the downward pressure exerted by the derivatives market. If retail traders continue to accumulate AAVE and liquidity inflows persist, the protocol could see substantial price movements in the short term. While volatility is likely, the long-term outlook for AAVE remains optimistic, as it continues to lead in the DeFi space and garner support from a broad range of market participants.