AAVE rallied over 9% over the past day amid community hype around its potential launch on Sonic blockchain and an uptick in whale accumulation.

Aave (AAVE) rebounded to an intraday high of $274.91 on Feb. 5, gaining 9.6% over the past 24 hours while recovering from earlier losses during a market-wide slump that briefly pushed the token down to around $253.44.

The altcoin’s market cap was seated at over $4.1 billion as of press time, with a circulating supply of 15,060,878 tokens, while its daily trading volume hovered over $853 million. Despite the recent gains, AAVE remains 58% lower than its all-time high of $661.69, reached in May 2021.

There are three main reasons why AAVE rallied today.

First, the Aave community recently completed an Aave Request for Comment proposal to bring AAVE V3 to Sonic, an EVM-compatible blockchain network. With nearly 100% approval, V3 may soon go live on Sonic following a final vote, which community members expect will enhance Aave’s adoption and revenue potential.

Second, the decentralized lending protocol managed to process $210 million in liquidations following the Feb. 3 flash crash, which wiped out approximately $2.2 billion from the crypto market. The event marked the largest single-day liquidation event for the protocol since the Aug. 5 crash.

Periods of extreme volatility often lead to bad debt accumulation, as a combination of multiple liquidation requests, sharp price drops, and low demand can overwhelm a protocol’s ability to process liquidations efficiently. However, Aave not only navigated this stress test without incurring additional bad debt but also managed to reduce its existing bad debt by 2.7%.

This demonstration of resilience and financial stability by the project has likely renewed investor interest, thereby driving demand for AAVE.

Third, whale activity around AAVE has increased over the past week, as previously reported by crypto.news. Newer data from Lookonchain shows a smart whale recently purchased 102,259 AAVE tokens, spending approximately $27.5 million worth of staked ETH.

Meanwhile, according to analyst Ali Martinez, whales picked up 62 million AAVE between Jan. 29 and Feb. 1. (See below.)

Additionally, World Liberty Financial Initiative, a decentralized finance platform associated with President Donald Trump, has been actively investing in AAVE in recent months. 

Such large-scale purchases by whales also encourage retail investors to follow suit. According to Coinglass data, over $363 million worth of AAVE moved out of centralized exchanges over the past week.

AAVE price action

On the 4-hour/ USDT chart, the MACD lines have pointed upwards, indicating that the bullish trend remains strong, which could fuel further gains for the altcoin.

The Chaikin Money Flow index also showed a positive reading also pointing upwards, suggesting a fresh supply of money or capital is supporting the current rally. Further, the Relative Strength Index recently bounced from an oversold level and has been moving upwards.

Hence, AAVE could continue its rally to retest $375, its highest point in January, which is 38% above the current price.

Such a scenario may play out, as the project could likely face a short squeeze in its futures market. The open interest in its futures market has risen by 10% to $240 million, while its weighted funding rate has turned negative at -0.0124%.

As such, if AAVE continues to rise higher owing to the buying pressure following the recent whale accumulation, this could lead to short holders facing liquidation, forcing them to buy back their positions at higher prices. This, in turn, could trigger a cascade of liquidations, further driving up the asset’s value.

Disclosure: This article does not represent investment advice. The content and materials featured on this page are for educational purposes only.