Why did Aave develop Lens Protocol?

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The article gives a perspective on why Aave developed Lens Protocol, a social networking platform that doesn't seem to be related to borrowing.



Lens Protocol - decentralized social networking platform launched testnet on May 18, 2022. But what few people notice is that the project is developed by a party not related to this field. That's the team behind the loan platform Aave. Why did they develop Lens Protocol? The following article will help clarify somewhat about this platform.

Aave and the development in the past time​

Aave is the leading DeFi lending platform with a peak TVL of around $20 billion. During the first half of 2022, the market was in a negative state, with BTC steadily declining by more than 50% from its $60,000 peak dating back to November 2021. But this didn't stop Aave from taking first place in TVL in the Lending segment on Defillama.

Lending platforms with the highest TVL

Has Aave reached the development threshold?​

Despite being a big project in DeFi, Aave is showing signs of slowing down because of the following parameters:

Total Value Locked plummeted​

Since DeFi exploded in the summer of 2020, Aave has shown strong growth in TVL. Within a year from September 2020, TVL hit the highest level of nearly 20 billion USD.

Aave's TVL split by 2 from the top
However, after that, TVL gradually decreased. By mid-May 2022, the value of locked assets in Aave was only about 10 billion USD.

Outstanding Loan reduced by nearly 100 times​

Outstanding Loan is the amount of assets being borrowed out of the Lending protocol. If this number is large, it means that many assets are being borrowed and vice versa.

Not many properties are being borrowed on Aave
The largest value of Aave's Outstanding Loan is approximately $700 million in April 2021. However, from then to June 2021, this number dropped sharply to nearly 10 times. Nearly a year later, the amount borrowed is 100 times smaller than it peaked.

Fewer and fewer borrowers​

Similar to the above indicators, there were more than 600 borrowers per day around September 2020. But this number is less than 10 people, even 1 or 2 people in May 2022.

Number of borrowers < 10 during May 2022
From the above indicators, it is easy to see that Aave is in a downtrend.

What is Aave's Cause & Solution?​

The cause of Aave's decline​

The first is the general market. From November 2021, BTC peaked with about 69,000 USD. But then it gradually decreased, leading to a double split from the peak in May 2022.

In addition, the total amount in crypto is also decreasing from November 2021. That means it has been half a year without new money flowing into crypto.

Cash flow into crypto declines
Next is DeFi, the TVL of the total decentralized finance market, which dropped sharply from more than 100 billion USD to about 50 billion USD in May 2022.

DeFi's TVL plummeted
Since both the market and DeFi are in bad shape. So Aave, like other projects, was badly affected.

What did Aave do?​

Over the past time, Aave has continuously updated with new features. At the end of 2020, the project launches Aave V2 with unique features such as Flash Loan, Credit Lending...

After that, the project launched Aave V3 in early 2022, allowing assets to move easily to borrow money, and a bunch of other features.

Portal feature of Aave V3 allows easier borrowing across chains
To see how dynamic Aave is, let's take a look at its competitor Compound . Their last update was in June 2021, with the launch of the Compound Treasury for traditional financial institutions that deposit money and receive a fixed 4% interest rate. Or the V2 version of Compound was born 2 years ago.

But based on the above figures, that much effort is not enough for Aave to attract users like before. So they started working on a new project. It's Lens Protocol.

Lens Protocol at a glance​

Lens Protocol Summary​

Lens Protocol's first tweet was on January 20. Lens Protocol is a decentralized social networking platform that is not controlled by anyone. The community can build projects on top of Lens Protocol. Therefore, it can be understood that Lens Protocol is a background layer, used to build projects related to social networks.

Lens Protocol homepage interface

What problem does Lens Protocol solve?​

Lens Protocol allows users to build Social Graph on blockchain . Social Graph can be understood simply as the relationship between entities (for example, users) with each other. Social Graph contains a lot of information such as name, age, who you follow, who follows you...

According to CBS, in 2018, the Social Graphs of users on social networks like Meta (formerly Facebook) were leaked . This shows that current centralized platforms possess a lot of user information.

With Lens Protocol, this information is owned by the user. You don't even need to provide an email, ID card, etc. to register, just a wallet address.

Speaking of decentralization, Twitter users must be no stranger to the "sweeping" of accounts that do not comply with regulations. But in fact, there are many people who do not violate and also have their accounts locked. And yet, even though these people have submitted an explanation, only a part is unlocked. The rest have to create another account.

In addition, once, Stani - Founder of Aave jokingly tweeted that he became the interim CEO of Twitter. Then the account was locked. This shows Twitter's strict content control, restricting users from creating content.

Stani says he's the interim CEO of Twitter
With Lens Protocol, users can freely post anything without fear of censorship or account lockout.

What can Lens Protocol do?​

Users don't need to think about what they can do with Lens Protocol, as the project itself has suggested quite a lot on the homepage, as well as tweeting on Twitter. It is a fair connection platform between KOLs and fans; social networks such as Twitter; the project supports users in the full right to use their data (for example, make a profit)...

The social networking potential of Lens Protocol​

Before we see how Lens Protocol works for Aave, let's take a look at the potential of social media.

In We Are Social's Digital 2022 report, the number of people using social networks has always increased over time since 2012. Or the most recent 2022 is an increase of 10% compared to 2021.

Social network user growth
Along with that, there are nearly 5 billion users on the Internet.

Internet user index
This means that about 93% of users on the Internet use social networks. Thereby, it shows that the demand for using social networks is strong in the world, and there is no sign of stopping.

Speaking of revenue, according to Statista, Meta has a strong Revenue and Net Income growth from 2007 to 2021.

Meta Revenue from 2007 to 2021
Thereby showing that social networks have had a great attraction for a long time, and are still thriving today. Even for some people, social networking is the Internet.

Why did Aave build Lens Protocol?​

With the leading position in the Lending segment along with decreasing indexes, Aave shows that it is hitting the development threshold of this segment.

This does not mean that the project cannot grow. If the cash flow returns, according to the mechanism of "water on the boat", Aave will still "float" with crypto. But if they want to go against the current downtrend, they need to innovate.

Based on social network data, it can be seen that this is a potential segment for the past 10 years, and there is no sign of stopping. Therefore, Lens Protocol can be used to accquire more users effectively.

This is a good move by Aave. Initially, we can see that there is no connection between the development of the Lending project and the social networking platform. But the main goal not only in these two areas, but in any industry, is to attract as many users as possible.

Once they have a large user base, they can dump this value on Aave. Or a worse case scenario, when Aave is no longer used by many users, Stani and his teammates still have the "other card" is Lens Protocol, which they are developing while Aave is still standing at the top position in Lending. .

Will Lens Protocol solve the credit lending problem?​

This is a question I'm still thinking about. Currently, I cannot find data on credit loans on Aave. But with Aave growing fast with only Money Market feature, as well as complicated usage of Credit Lending (requires coding). So maybe not many people use this feature.

Another limitation of credit lending in crypto is that it is difficult to assess the credibility of users. Because they can only be judged by the assets in the wallet, or better yet just the behavior of the previous wallet with another project.

The wallets when creating an account in Lens Protocol, can be used for the above construction projects. So in addition to proving the credibility of the assets, the wallet can show credit levels through social media activity. And more than just being recognized on a social network, wallets can accumulate credits across various platforms on Lens Protrocol.

When Lens Protocol succeeds in proving the credibility of the wallet, this will increase the number of users using Aave significantly, as it simplifies the credit lending process. As users increase, revenue will increase, thereby pouring value into AAVE tokens.

Lens Protocol Challenge​

That's not to say Lens Protocol will take a flat road. In fact, social networks do not control users to help diversify content. But the flip side of it is bad news, inaccurate news and no one to manage. This has a significant impact on the psychology of users.

Back to the example of Stani tweeting jokingly about the Twitter CEO. If Twitter did not act in time, many people who believe it would not know what would happen. Will they sell off Twitter stock? Or buy strong? Nobody knows.

If Youtube does not censor and classify content for adults and children, how many parents will allow their children to use Youtube? How will they control their children when they are busy all day?

The story of whether social networks should be censored or not, is essentially the same as whether blockchain should be transparent or not, so far there is no exact answer. If the blockchain is transparent, funds cannot hide their private transactions, but at the same time we are exposed to everything, and vice versa.

Therefore, Lens Protocol needs to demonstrate decentralization, no censorship, but still ensure good value content. That is no small challenge.

summary​

Web3 is now proving to be the coming trend of the world. In which social network is an area with a lot of potential. Lens Protocol is only in the early stages of development, it is not known if it will succeed in the future, but it shows that Aave's direction is on the right trend.

Will this help Aave return to its heyday? You can comment your opinion below to discuss.
 

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