More borrows, less sorrows: Things are heating up again in the lending market

It seems like, at least gradually, things are heating up again in the lending market. While activity still pales in comparison to the heat of DeFi summer, there does seem to be an uptick in both borrowings and repays on major lending platforms on Ethereum ETH -4.50% .

On May 7, net borrows on Aave AAVE -3.29% came out to $158.65 million. Net borrows refers to the amount of loans being taken out minus the amount of loans repaid. So when a platform has a daily net borrow that is negative, that just means more loans were paid back than originated that day.

For Aave, this is the largest day of net borrows in over a year. For most of the past 12 months, net borrows have been pretty mild, with occasional spikes. In the summer of 2023, it was more common to see a spike in repayments as opposed to a spike in borrows, indicating that not many people were coming to the platform to take out loans.

Since the end of February, there has been a bit of a change of pace. Over the past three months, we have seen 36 days where net borrows exceed $20 million, something that was much more uncommon earlier in the year. We also saw many days of net repayments in the latter half of April, again with a more steady larger sum compared to earlier in the year.

Aave seems to be leading the pack in terms of the lending resurgence, as Compound COMP -2.044% has not seen much net activity in either direction. However, Aave has become a much more dominant force in Ethereum lending, especially after the launch of its v3 at the start of last year.

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Unique borrowers on Ethereum lending protocols have also picked up over the past 12 months but seems to have hit its peak in February. But still, the over 200 addresses borrowing from Aave per day this May is much higher than the often fewer than 100 addresses borrowing from Aave back in May 2023.

And to be fair, while DEX volumes on Ethereum have increased in recent months, they're still lower compared to their peaks back in late 2021, indicating a similar trend to lending.

Part of what has been weighing on the Ethereum DEX space is that DEXs on other networks like Solana SOL -6.020% and Base have been attracting a lot of attention.

Lending on other chains is popular, too, which could explain why Ethereum lending is still so low compared to a few years ago despite the crypto turnaround. For instance, JustLend on Tron TRX -0.60% actually exceeds Compound in total value locked. Both Aave and Compound have expanded their offerings to other networks.

This is an excerpt from The Block's Data & Insights newsletter. Dig into the numbers making up the industry’s most thought-provoking trends.