Aave (AAVE) is rallying by 11% in the past 24 hours despite news of a smart contract vulnerability that allowed bad actors to drain $305,000 from two Safe wallets.
The founder of the Aave protocol, Stani Kulechov, highlighted that this was an incident involving a third-party protocol built on Aave and emphasized that it had “zero effect on Aave v3.”
The market seems to be ignoring this incident entirely following Kulechov’s clarification. Instead, investors seem to be focusing on robust on-chain metrics that could be evidencing the beginning of a bull market for this DeFi project.
Meanwhile, $3 million worth of short positions have been blown up today in the futures market. This is the largest single-day wipeout on record since August 20, and it is the third-largest short liquidation of this year.
A short squeeze of this magnitude could ignite the beginning of AAVE’s next leg up at a point when demand for on-chain protocols could be picking up.
AAVE On-Chain Metrics Justify a Rally Above $250
Aave posted in its official account today that cumulative borrow volumes just surpassed $1.1 trillion, while active loans hit $400 million for the first time in history.
Looking at on-chain data, we can see that active loans have been steadily recovering since June, signaling growing demand for AAVE’s lending markets after crypto assets hit what is currently their cycle bottom.
This metric has risen from $10 billion back then to $13 billion by the end of September, strengthening the AAVE token’s fundamentals. The last time that active loans were this high, the AAVE token traded above $250.
On the other hand, protocol fees have now been recovering for two months in a row, closing September at $37 million for a 12% month-on-month jump.
AAVE Could Be Eyeing Hot Liquidity Zone at $230 – $300
Turning to the daily chart, we can see that AAVE reversed its downtrend after climbing strongly above the $100 mark. Paired with a bullish breakout above the 200-day exponential moving average (EMA), this confirms the beginning of a bull market for this DeFi token.
Since then, AAVE has booked an 80% gain and could be on track to book another 64% price jump, as the next target in sight could be the $300 level.
Positive momentum continues to accelerate, as the Relative Strength Index (RSI) just climbed to 73.
Following a confirmed break of structure on September 25, we envision a strong area of liquidity for AAVE sitting between $230 and $300. These are price zones that were previously heavily bearish and that now present little resistance.
A dip to $145 may be considered an opportunity for late buyers to enter the rally at this promising stage, especially as a full-on bull market can further push Aave’s on-chain metrics to levels that justify higher valuations in the near term.
