AAVE price declines by 7% despite V3 receiving approval to deploy on Ethereum

Aave has been a leader in the decentralized finance (DeFi) space for a very long time, even standing as the biggest DeFi protocol at one time. Despite losing 77.89% of the total value locked on the platform, Aave is still  the biggest lending protocol in the world, thanks to its multiple iterations, the latest being V3.

Aave V3 comes to Ethereum

Aave, in its latest governance proposal, proposed the deployment of its third iteration on Ethereum. The proposal, if approved, will activate the Aave V3 Ethereum pool and list seven pre-approved tokens on the platform, including USD Coin (USDC), DAI, LINK, and AAVE.

Since its launch in March 2022, Aave V3 has been deployed to multiple blockchain networks, including Polygon, Optimism, Avalanche and Arbitrum. However, the decision to deploy it on Ethereum nearly a year later seems to be calculated in order to eliminate any bugs existing within V3.

This is because Ethereum is the biggest market when it comes to lending and borrowing, which Aave primarily dominates with its $4.5 billion TVL.

The vote for the governance proposal is still in progress with a 100% approval rate, and when it passes, V3 will be deployed on Ethereum on January 27. Since Ethereum is their biggest market, the Aave community has decided to deploy a fresh version of V3 instead of upgrading the V2 pool.

This way, compatibility among the V3 pools will be better the general complexity will also be lower.

AAVE price does not agree

AAVE price surprisingly did not react positively to this development, as the altcoin slipped by more than 7.5% on Tuesday. At the time of writing, AAVE could be seen trading at $80 despite almost breaching the immediate resistance at $88.

However, this is not the end of AAVE’s rally, as no bearish influence caused the price fall. The decline was the result of the cooldown following AAVE’s almost 70% rally. Thus once the altcoin has settled, chances of an uptick are high if the cryptocurrency manages to bounce off the support level at $77.

This would give AAVE price another shot at breaching the immediate resistance at $88, allowing the cryptocurrency to run up towards $96. Flipping this level into a support floor is crucial for the altcoin, as only then will it be able to rise further toward its next resistance level at $103.

AAVE/USD 1-day chart

But should the cooldown extend into a correction and AAVE lose the support of $77, it could decline further toward $69 and $67. Losing the latter will result in a price fall to the critical support level at $58, and a daily candlestick close below the same will invalidate the bullish thesis as well as all gains made in the last three weeks.