Aave price is in trouble as US money market fund yields rise

Aave price has been in a strong bearish trend in the past few months.

There are concerns about the American interest rates.

Money market funds and CDs have a better yield than Aave.

AAVE price has underperformed the market amid rising concerns about the DeFi protocol’s viability in a high-interest rate environment. The token plunged to a low of $55 on Monday, a 42% decline from the highest level this year.

Higher interest rates

Aave is a DeFi protocol that enables people to earn interest by providing liquidity in its ecosystem. This liquidity is then used to lend money to other people, who are interested in its crypto loans.

Aave is the second biggest player in the DeFi industry with a total value locked (TVL) of over $7.2 billion. Only Lido DAO, with a TVL of over $14 billion is bigger than Aave.

The challenge that Aave and other cryptocurrencies are facing is that cash is providing bigger returns these days. For example, money market funds in the US are yielding over 5% in the US.

In contrast, most coins in Aave offer a smaller yield than the USD. For example, the deposit APR for WETH is 2.26% while USDC, USDT, and Dai have a 2.81%, 4.45%, and 2.79%, respectively.

Therefore, many people, especially those in the United States are likely rotating from crypto to US assets. This partially explains why the US dollar index (DXY) has jumped to over $104.

$AAVE