nullstate

$AAVE is around $185, with a market cap of about $2.7 billion. Its all-time high was $662 in May 2021. The token is still roughly three quarters below that price, even though the market it serves is larger and the product is much better.
Explaining why a cryptocurrency might be worth buying usually requires a diagram, several invented words and a request that you stop asking where the money comes from.
Aave is easier to explain. People use it to borrow money. They pay interest. Aave keeps some of that interest.
I think there's a good business here, and that people are overlooking it because it lives in a part of finance where overlooking things is often a sensible precaution.
What does it actually do?
Say you own some crypto. You want cash, but you don't want to sell what you own. You can put it up as security for a loan through Aave.
It's roughly the idea behind a loan secured against a house, except the thing securing this loan is crypto, which can have a very eventful Tuesday.
Other people supply the money you borrow. They earn interest, and Aave takes a share for running the system. Most of this happens through software. If the value of your collateral falls too far, the system can sell it to help repay the loan.
That's the basic arrangement. You get access to money. Someone else gets paid to lend it. Aave earns a fee. You can understand the business without understanding how a blockchain works, much as you can understand a mortgage without knowing why your bank's website still looks like that.
And people already use it. Aave has billions of dollars in outstanding loans. This is an operating lending business, with customers paying to use it.
Why could it get bigger?
Until recently, the story was mostly about people borrowing against crypto. Aave is now expanding into loans backed by digital versions of assets such as stocks and investment funds.
The useful part is what that lets someone do: borrow against something they own without selling it.
People already do this in ordinary finance. Aave is trying to bring more of that activity onto its system. It doesn't need everyone to abandon their bank. It needs enough borrowers to find it useful and enough lenders to supply the money.
That's why it interests me. There is an existing business here that could serve more people and more kinds of assets. The demand doesn't depend entirely on persuading the public to become emotionally attached to another coin.
Fine. But why buy the token?
Aave has a token called $AAVE . This is where the argument needs a little care.
Buying it is not the same as buying shares in a bank. You don't automatically receive a slice of the interest borrowers pay. Aave can do well as a lending business without the token going up in price.
There is, however, a possible connection. The organization that governs Aave has used money to buy AAVE tokens on the open market. There has also been discussion about permanently removing purchased tokens from circulation. Buybacks.
Think of a company buying back its shares. It isn't the same legal arrangement, but the basic appeal is similar: money from the business can support demand for the thing investors hold, and retiring it can reduce the amount available.
If buybacks keep running and the bought tokens are retired for good, every remaining token becomes a slightly larger claim on a growing business. That is the bull case, and it compounds if the business keeps growing.
So what's the bet?
I think Aave could become a much bigger lending business, and that its token could benefit if more of the money it earns is used to support token holders.
There are plenty of ways that can disappoint. Borrowers can leave. Things can break. The people running the system can make bad decisions. And the token can fall even while people keep using the service.
But I like being able to explain where the money comes from. Someone needs a loan, someone provides it, and Aave gets paid for bringing them together. In crypto, getting that far without needing a second diagram is enough to keep me interested.