AAVE: Can the $50 Million Buyback Plan Repeat the 50% Price Surge?

The DeFi lending platform Aave has initiated a $50 million annual buyback program aimed at enhancing the value of its AAVE token. Following a successful trial earlier this year, this plan seeks to encourage value accrual within the ecosystem. As the buyback may impact AAVE's price significantly, particularly with a favorable market backdrop, it’s essential to understand the potential outcomes of this strategy.

Key Takeaways

The Aave team has declared the trial initiative a “strong success” in boosting AAVE's value.
A positive market sentiment may support the deflation strategy, potentially increasing AAVE's value in the long term.
Aave has approved a $50 million yearly buyback program, reflecting confidence in its tokenomics after a successful initial test.
Weekly purchases of AAVE will range from $250K to $1.75 million, depending on the protocol revenue and various other factors.

Aave Source: Aave DAO

Before implementing this proposal, two further steps are necessary. In the meantime, AMBCrypto analyzed the pilot program to assess its possible effects.

Aave

The AAVE Buyback Program and Its Potential Effects

Since May, Aave has successfully acquired over 94,000 AAVE tokens, with total spending exceeding $22 million. The most notable purchase was made in May, where 20.1K AAVE tokens were bought, reflecting the largest monthly buying activity in the trial phase.

Aave Source: Blockworks

In May, AAVE enjoyed over a 50% price rise, aided by a wider market recovery during Q2. Between July and October, Aave maintained an average monthly acquisition of about 10K AAVE tokens. This strategic deflation and recovery saw AAVE reach a peak of $385 in August. Nevertheless, market challenges in Q4 have since driven its price below $200, despite continual buyback efforts.

Additionally, AAVE's value shows a solid positive relationship with Ethereum (ETH).

The Impact of ETH Correlation on AAVE Prices

Aave Source: Blockworks

The data indicates that AAVE tends to increase more sharply during ETH price rallies, while it also declines more significantly during downturns. As Ethereum serves as a key indicator for the overall DeFi sector, momentum from ETH can benefit AAVE, suggesting that an ETH recovery could elevate AAVE's price if this correlation holds.

However, it’s worth noting that AAVE has faced selling pressure since the market downturn in October.

Impact of Exchange Inflows on AAVE’s Price

Recent data from CryptoQuant reveals a peak in Exchange Netflow to a seven-month high, with around 10,000 AAVE being sent to exchanges weekly for selling last month.

Aave Source: CryptoQuant

Unless the pressure from exchange selling diminishes, AAVE's price may remain under strain in the near term. Overall, AAVE, along with the broader market, is experiencing selling pressure. However, the expansion of its buyback program could potentially enhance its value in the future.