Aave protocol is safe says new DeFi Pulse tool

Aave has over $1 billion in total value locked and is currently the fourth largest by this metric among DeFi protocols

Data shows that the Aave protocol- ranked 4th in terms of total value locked- is not risky to depositors. According to DeFi Pulse’s recently introduced risk assessment tool, Aave has a score of 95% and thus is ‘very safe’ for its community of users.

The tool also showed Compound, the other project to be assessed, has a score of 91% to rank similarly to Aave as above the ‘safe’ line.

Risks within the DeFi space

The Economic Safety Grade tool, developed by DeFi Pulse and digital asset platform Gauntlet, measures and assigns a percentage to the risks a project is likely to carry.

The tool’s introduction in the ecosystem follows an explosive period for projects with the sector. With so many investors keen on the profits, few take time to examine the risks involved.

However, after a number of security breaches, Gauntlet highlighted the risks within the space and noted that the Economic Safety Grade tool would help address some of these.

The tool grades a protocol’s risk value at 1-100, with a focus on aspects such as collateral volatility, liquidity, smart contracts security, protocol parameters and overall user behavior.

According to DeFi Pulse, the tool runs “simulations utilizing data from centralized and decentralized exchanges combined with on-chain user data to estimate market risks”.

Aave and Compound have $1.10 billion and $865 million worth of value locked in smart contracts of each protocol respectively.

Here is a glimpse of how Aave (AAVE) is performing in the market today.

AAVE/USD

Aave migrated the LEND token to AAVE at a ratio of 100:1, with the AAVE trading at a high of $53.4 on October 10.

The AAVE/USD pair has struggled however to gather upside momentum over the past week. Following a sharp decline from highs of $56.00, increased downward pressure has forced prices below the 20-day simple moving average.

Support around $47 provided a cushion against further losses, with the slight gains slowing downward momentum. However, the overall picture remains bearish unless buyers push higher and break above the 20 SMA near $51.40.

The technical outlook on the 4-hour chart suggests bulls will struggle to break the above barrier.

As of writing, the RSI is printing a value of 44.45 to suggest bears are not out of the frame completely. If the breakdown resumes, the lack of significant support could see the area around $46.00-$45.00 provide the next support zone.