Aave (AAVE), one of the largest decentralized lending protocols in DeFi by total value locked, continued its modest recovery on Tuesday, trading above the 50-day Exponential Moving Average (EMA) at $90.80. The price movement comes as the protocol sees increased adoption across its V3 and V4 deployments, even as derivatives data and momentum indicators paint a more cautious picture for the token's near-term outlook.

Protocol Deposits Surge Across Aave V3 and V4

Aave V3's deployment on the Monad Layer 1 blockchain has attracted more than $500 million in deposits over the past month, accompanied by over $215 million in active loans. Meanwhile, Aave V4 deposits have surpassed $350 million, setting a new record after growing by more than $100 million over the last 30 days.

The growth in Aave V4 may be partly driven by an attractive USDC borrowing offer. Holders of cbBTC, WBTC, WETH, and wstETH can reportedly access a borrowing rate of negative 0.2%.

The deposit increases across both Aave V3 on Monad and Aave V4 underscore expanding protocol usage, even as demand for the AAVE token itself remains subdued among retail traders. This divergence—rising on-chain activity alongside softening token-market sentiment—highlights the distinction between protocol fundamentals and token price action, a dynamic that DeFi analysts frequently monitor when evaluating lending platforms.

Derivatives Market Shows Declining Momentum

Despite the rise in protocol deposits, AAVE is losing traction in the derivatives market. Futures open interest fell by more than 6% over the previous 24 hours to $302.15 million, according to data from CoinGlass. The decline reflects a contraction in outstanding futures contracts and indicates that traders are reducing their exposure.

AAVE's funding rate also dropped below zero to negative 0.0046%. A negative funding rate typically signals a bearish tilt, with short-position holders paying those holding long positions.

The 24-hour long-to-short ratio declined to 0.9372, indicating that active short positions outnumber longs and reinforcing the cautious sentiment in the market.

Technical Outlook: Key Levels to Watch

AAVE is hovering above $90, maintaining a mildly constructive near-term stance above its 50-day EMA at $90.80. However, the token remains well below its 200-day EMA at $112.75, suggesting that broader recovery potential is limited.

The Moving Average Convergence Divergence (MACD) indicator continues to decline below its signal line, reflecting persistent bearish momentum. The Relative Strength Index (RSI) stands near 49 and is trending lower while AAVE's price forms a modest upward trend—a bearish divergence that suggests buying momentum is weakening despite the recent recovery.

The 50-day EMA at $90.80 serves as the key immediate support level. A decisive daily close below this moving average could accelerate selling pressure and trigger a decline of roughly 20% toward the June 18 low of $70.65.

On the upside, the psychological $100 level represents AAVE's first major resistance. This area sits near the May 10 high of $103.51, creating a broader resistance zone between $100 and $103.51. A sustained break above this region would strengthen the bullish case and could allow AAVE to target the 200-day EMA at $112.75.