Yesterday, Virtuals Protocol announced that VIRTUAL tokens can now be traded on the Solana chain, its official LP is now online on Meteora, and preparations have been made for Virtual Protocols Launchpad on the Solana chain. At the same time, Nansen CEO Alex Svanevik tweeted when Aave would be available on Solana, and then mentioned Aave team members and Solana founders.
But the comment section of this tweet has turned into a debate between the Solana faction and Aave supporters. Looking at it more broadly, this is also a battle for market share between the Ethereum ecosystem and the Solana ecosystem in specific application areas.
A war of words over loan agreements
Solana’s Multicoin partner Kyle Samani commented on Kamino, a DeFi lending protocol in the Solana ecosystem, under this tweet, intending to indicate that Kamino is the Aave of the Solana ecosystem.
Svanevik responded that Aave is 10 times larger than Kamino, and “if Aave users can easily switch chains, it will be a huge TVL release.”
But Solana founder Toly and Foundation Chairman Lily Liu do not think so. Lily said that Kaminos product is better, and then proudly said Todays indicators do not represent tomorrows performance. Toly said that supporting a local team focused on the Solana mainnet is a wiser long-term investment than supporting a multi-chain team that is distracted, and it directly eliminated the possibility of Aave coming to Solana.
Under the sharp comments from the Solana ecosystem, supporters of Aave and even the Ethereum ecosystem are not willing to be outdone.
Aave founder Stani directly fired back, saying that the current status of Solana DeFi is to copy Aaves old technology, paste a half-finished UI, and restrict British users from using it. Although Stani was talking about Solana DeFi, anyone with a discerning eye knew that he was targeting Kamino, which is also a lending protocol.
So, toly released the DeFiLlama interface of Aave and Kamino, saying that Kaminos TVL is 1/8 of Aaves, but its revenue is only 1/2.5 of it. I dont understand why Aave is a better product. If there is no revenue to be squeezed out of it, TVL is just a cost.
Stani also responded sharply that Kaminos USDC reserve factor (i.e. the proportion of each transaction or fund pool extracted by the platform) is 15%, while Aave is only 10%, which means that its fees extracted from the users fund pool are higher. Stani believes that this is a manifestation of the current lack of competition in the Solana ecosystem, resulting in users weak bargaining power when choosing DeFi platforms, charging higher fees, and ultimately paying the bill.
Alex Svanevik, the person who started this war of words, added fuel to the fire. He said that Solana has surpassed Ethereum in many key indicators, including the number of active addresses, transaction volume, DEX transaction volume, and total gas fee income. However, in terms of TVL, Solana has not yet surpassed Ethereum. In view of this, the most direct strategy is to attract Aave, the application ranked first in TVL on Ethereum, to deploy on Solana, thereby further enhancing the competitiveness of its DeFi ecosystem.
Some people in the comments questioned that this statement is unreasonable, because Aave’s deployment on Solana will not create TVL out of thin air. Svanevik explained that in order for Aave’s deployment to not bring about any growth in Solana’s TVL, the following two conditions must be met at the same time:
1. Aave’s current TVL has no funds migrated to Solana at all;
2. There is no new TVL entering Aave on Solana.
However, Aave has successfully attracted $20 billion in TVL, so Svanevik believes that Aave should be migrated to Solana, making it difficult to tell whether Svanevik is the Ethereum maxi or the Solana maxi.
Trust costs more than anything else
There is no doubt that Aave is the core DeFi application of the Ethereum ecosystem, and together with Uniswap, Lido, etc., it constitutes the core pattern of Ethereum DeFi. Some people in the community also question why Ethereums top DeFi applications will miss out on an ecosystem with unlimited potential like Solana. Putting aside technical factors such as code, the reason why an application chooses not to migrate to a new ecosystem is the same as those who choose to expand the ecosystem, all for the purpose of achieving incremental development.
Virtuals Protocol has expanded to Solana, with a broader user and liquidity base, and Aave is not going to Solana, presumably because of considerations about the competitive landscape. Solanas current DeFi section has become increasingly complete. For the lending protocol alone, there are multiple late-stage teams such as Kamino, marginfi, and Save competing for market share. Aaves expansion costs will be higher than expected.
More importantly, Aave’s existing brand image will also change due to the expansion. As someone in the community said, “If someone with seven or eight figures wants to get higher returns than off-chain while ensuring security, then ten times out of ten, they will be recommended to go to Aave on Ethereum instead of DeFi on chains such as Solana, Tron, Celestia, etc.”
Security is the foundation of a lending product. Only when there is sufficient security audit, experience in dealing with hacker attacks and mature contract design to support it, will large investors and ordinary users choose to park their assets here. Therefore, the reason why Aave can become one of the most influential lending platforms on Ethereum is inseparable from Ethereums long-standing developer ecosystem, security audit cases and huge and mature capital pool.
The financial attributes of DeFi determine that the longer it runs, the greater its stickiness. This stickiness is rooted in the deep trust in the security and stability of product contracts. And this trust cost is not only limited to the consideration of the speed, performance and transaction fees of a new chain, but also includes the perfection of infrastructure, the coverage of audit companies, the communitys alertness to potential security vulnerabilities, and the ecological response ability to be promptly compensated under extreme conditions.
Related reading: Re-examining Defi: The present and future of the most mature track of Web3 business model
Looking back at the development of Ethereum DeFi in recent years, many projects have experienced major vulnerabilities or security incidents, and even suffered losses of hundreds of millions of dollars. It is through repeated responses and iterations that the security barriers of Ethereum DeFi have been gradually built. The reason why Aave is so popular is that it relies on this layer of security moat, making it the first choice for users with large amounts of funds, especially institutional players. In other words, most people regard Aave as a synonym for low risk and considerable returns, especially for users with funds of millions or even tens of millions of dollars. Safety and stability always come before incremental returns.
In contrast, Solana, as a high-performance Layer 1 blockchain, does have certain advantages in terms of transaction speed and Gas fees. However, from the perspective of lending protocols, the core of financial applications lies in the risk-return ratio. Fast speed and low cost are of course important, but if they cannot provide enough time-tested security and a record of anti-attack, such advantages are often not enough to support the long-term migration of a large amount of liquidity in the DeFi track. In particular, the lending business itself has to face multiple risk factors such as liquidation, interest rate fluctuations, contract audits, and hacker attacks; once a problem occurs, the brand image and trust accumulated by the platform over the years will be instantly disintegrated, and this trust cost is far more expensive than the technology itself.
Looking further, even if Aave really chooses to expand to Solana, it will not necessarily bring about the so-called increase out of thin air of TVL. Funds are profit-seeking and rational. Aave is not willing to automatically split and migrate the 20 to 30 billion US dollars of TVL accumulated on the Ethereum mainnet to another chain. On the contrary, due to the huge differences in the underlying technology stack, development language and even community culture between the chains, Aave needs to invest a lot of time and resources to adapt and audit, which in itself means extremely high expansion costs and management risks. Whats more, the existing local lending protocols on Solana are also becoming more and more mature, and Aave does not have a first-mover advantage.
Therefore, under the premise of having the triple moats of security barriers, brand and capital scale, if Aave insists on large-scale expansion to Solana, it may not be the wisest choice. After all, in the long marathon competition of DeFi, winning the trust and security awareness of users is the most difficult core barrier to shake.
