Crypto Market Weekly Report: Macroeconomic Factors Dominating the Market, Aave Releases V4 Plan

Recently, the crypto market has lacked a clear direction, with Bitcoin and most altcoins showing a downward trend. The current market is highly correlated, reflecting the dominant role of macroeconomic factors. Although some central banks have reiterated their plans for interest rate cuts in the summer, higher-than-expected inflation data in the U.S. has raised concerns about the Federal Reserve delaying rate cuts, leading to a stronger dollar and putting pressure on the crypto market.

However, the momentum of the US dollar has begun to stagnate. The employment data released in early May fell short of expectations, and market expectations for the first rate cut have shifted from November to September 2024. Nevertheless, we believe that changes in the US unemployment rate will not become a focal point for the Federal Reserve in the short term, as it remains close to historical lows. The Federal Reserve is expected to continue focusing on inflation indicators, highlighting the importance of the upcoming PPI and CPI data.

In terms of on-chain development, Aave recently announced its protocol's fourth iteration (V4) plan, as part of Aave's long-term vision for 2030. V4 introduces several architectural improvements, including a unified liquidity layer, variable interest rates, and liquidity premiums. The plan also aims to strengthen the use of the GHO stablecoin and incorporates other optimizations such as risk management and liquidation engines. Although the V4 plan is set to launch in the second quarter of 2025, this announcement reflects the ongoing enhancement of core functionalities in mainstream DeFi protocols.

It is worth noting that the expansion of DeFi protocol functions faces technical challenges, especially in achieving rapid innovation while maintaining security. Successful DeFi protocols typically achieve functional expansion by deploying new versions and incentivizing users to migrate liquidity, a process that can be relatively slow. For example, Aave V3 was launched in 2022, but it wasn't until September 2023 that it surpassed V2 in total locked value (TVL). The adoption cycle for V4 is also expected to undergo a similar process.

Additionally, Aave's 2030 roadmap seems to compete with Maker's Endgame plan, especially in the stablecoin space. Both protocols present similar visions, including specific networks, cross-chain liquidity layers, and enhanced integration of real-world assets (RWA), among others. Currently, Aave and Maker have TVLs of $10.5 billion and $8.2 billion, respectively, making them significant lending sources in the DeFi space.

Overall, although Maker and Aave's long-term development plans paint a hopeful future for these protocols, the market may still primarily focus on the macroeconomic environment in the short term. In the coming week, the market will closely monitor U.S. inflation data and Federal Reserve Chairman Powell's speech. Unless a major surprise occurs, market volatility may continue to contract, and the correlation between cryptocurrencies and traditional markets may further increase.