Aave generates $2.1M daily revenue during market downturn

The DeFi lending giant liquidated $234 million worth of crypto collateral on Tuesday

August 7, 2024 12:18 pm

Aave modified by Blockworks

Aave generated $2.1 million in daily revenue amid a flood of cascading loan liquidations on Tuesday, based on TokenLogic data.

The jump in daily revenue stems from liquidation fees amid the recent market selloff. Aave’s v3 deployment on Ethereum alone raked in $1.25 million in liquidation fees on Aug 6.

Liquidations on Aave v3 totaled $234 million, including $137 million WETH, $62 million wstETH and $21 million WBTC, according to Block Analitica.

The largest liquidated wallet (0x645…c4bfa) saw $73 million liquidated, making up 31% of total v3 liquidated collateral.

Aave founder Stani Kulechov tweeted: “Aave Protocol withstood market stress across 14 active markets on various L1s and L2s, securing $21B worth of value. Aave Treasury was rewarded with $6M in revenue overnight from decentralized liquidations for keeping the markets safe.”

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Kulechov’s tweet of $6 million in daily revenue was projected revenues based on liquidation fees collected during the early hours of Monday morning.

“On Aug. 5, the Aave DAO was on track to generate over $6 million in daily revenue, driven by $1.51 million in Liquidation Fee revenue recorded within a seven-hour period,” TokenLogic founder Matthew Graham told Blockworks.

Aave did not return a request for comment by the time of publication.

Like all lending platforms, Aave generates revenue from interest fees charged on loans and liquidation fees.

“When liquidations occur on Aave, liquidators have an incentive to earn a Liquidation Bonus, which varies between 5-10% of the collateral value. A portion of this Liquidation Penalty, called the Liquidation Factor, is directed to a DAO-owned collector contract,” said Blockworks Research analyst Luke Leasure.

“As such, liquidations on the protocol are revenue-generating events. While the DAO will no longer earn interest revenues from these closed out debt positions, efficient liquidations are capable of generating substantial revenue for the protocol.”

On Saturday, just before crypto markets fell, Aave DAO passed its first temperature check on a landmark governance proposal that would begin returning protocol revenue to AAVE token holders.

Marc Zeller, founder of the Aave DAO delegate, Aave Chan Initiative, said the governance proposal can be put in place by the end of 2024.

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