Aave (AAVE) still looks big on paper. The protocol holds close to $50 billion in deposits, which usually signals strength. 

But under the surface, something has changed. Since August, borrowing volume on Aave has dropped by around 70%, and that gap explains why the AAVE token is down about 35% year to date. The issue isn’t liquidity. It’s demand.

Aave makes money when people borrow. Interest paid by borrowers is what generates protocol fees. Deposits sitting idle do very little on their own.

Right now, a large share of Aave capital is doing exactly that, sitting idle. When borrowing slows down, revenue falls, even if total value locked stays high. That’s why the market is paying less attention to TVL and more attention to revenue per dollar locked.

Moreover, one of the biggest reasons borrowing dropped is simple. Rates collapsed. USDC borrow rates on Aave fell from about 7.7% to 4.5%, which made leverage trades less attractive.

As yields dropped, large players adjusted fast. Ethena unwound positions that had relied on higher rates, pulling significant borrowing demand off Aave (AAVE) almost at once. When that flow left, volumes fell with it.

At the same time, Maple began capturing more institutional borrowing. For large players, borrowing demand follows yield and structure. If another platform offers better terms or cleaner execution, capital moves quickly.

AIXbt summed it up clearly. Aave is no longer offering enough of an edge. When yields compressed, borrowers didn’t wait around. They moved to where the returns made more sense.

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However, this is the key issue. Aave still holds massive deposits, but revenue per TVL is shrinking. That’s why the token is under pressure.

A $50 billion TVL sounds impressive, but if borrowing activity dries up, it stops translating into value for token holders. This is why traders are reassessing what “blue chip DeFi” really means when yields disappear.

As one trader put it, it’s surprising how fast the label changes once the yield dries up.

For Aave to turn this around, borrowing demand has to return. That means better rates, stronger incentives, or a shift in market conditions that makes leverage attractive again.

Until then, the disconnect remains. Aave (AAVE) is still large, still trusted, and still widely used. But without borrowers, size alone isn’t enough to support revenue or the token price.

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The post Aave (AAVE) Has $50B in Deposits, but Borrowing Is Down 70% – What’s Going On? appeared first on CaptainAltcoin.

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