OnChainFX Alert: Tether integrates with DeFi lending protocol Aave

Aave recently collaborated with stablecoin issuer Tether to integrate USDT, the largest USD-pegged stablecoin in terms of market cap, into Aave's Ethereum-based lending platform. Users can now lend ERC- 20 USDT tokens to borrowers looking to take advantage of Aave's flash loans, a novel lending product that allows users to take out uncollateralized loans as long as they are paid back in the same transaction. Aave CEO Stani Kulechov believes this collaboration with Tether could attract more money into DeFi, and Aave directly, because of Tether's unmatched levels of liquidity among stablecoins.

Aave's in-protocol token, LEND, is up over 30% in the last 24 hours. The token's supply is tied to the volume on Aave, as the protocol burns LEND tokens in proportion to the lending fees it collects.

Why it matters:

• Stablecoins have already become the dominant form of transfer value within Ethereum's economy, primarily due to the rise of USDT issuance on Ethereum starting in early 2019. Other DeFi platforms might follow Aave's lead and integrate with Tether to take advantage of its popularity and liquidity.
• If Stani's intuition is correct, increasing Tether's presence within DeFi could attract even more interest to flash loans. While Ethereum could benefit from an increase in adoption, flash loans were the entry point for last month's "attacks" on bZx, which led to the loss of almost $1 million from its lending pools. The silver lining is these types of attacks could be a "necessary evil" as they can help developers identify areas of weakness and cross-application risks.

Let us know what you loved about the report, what may be missing, or share any other feedback by filling out this short form. All responses are subject to our Privacy Policy and Terms of Service.