• Aave price trades in red on Tuesday, facing rejection near a key resistance zone.
• On-chain data shows declining TVL and lending capacity, falling to levels last seen in mid-August.
• The technical outlook signals a correction as selling pressure begins to build.

Aave (AAVE) price trade below $260 at the time of writing on Tuesday as the token faces weakness around its key resistance zone. On-chain indicators paint a bearish picture, with declining Total Value Locked (TVL) and lending capacity suggesting reduced network activity, while technical signals point toward a possible near-term correction.

On-chain data suggests a reduction in network activity 

Arthemis Terminal data shows that Aave’s TVL fell from $39.9 billion on October 7 to $33.2 billion on Monday, reaching levels not seen since mid-August. Falling TVL indicates declining activity and waning interest within Aave’s ecosystem, suggesting that fewer users are depositing or utilizing assets within AAVE-based protocols.

AAVE TVL chart. Source: Artemis

Additionally, AAVE’s lending loan capacity has also fallen from $65.6 billion on October 7 to $55.5 billion on Monday, reaching levels not seen since mid-August. This fall in lending capacity indicates less liquidity is available for borrowers, signaling reduced participation or declining confidence in the protocol.

AAVE lending loan capacity chart. Source: Artemis

Aave Price Forecast: Bears in control of the momentum 

Aave price broke below the ascending trendline on Friday and declined more than 18%, reaching a low of $79.51 that day. However, AAVE recovered by 16% in the next three days. At the time of writing on Tuesday, it trades down as it nears the previously broken trendline. This trendline roughly coincides with the 61.8% Fibonacci retracement level at $268.91, making this a key resistance zone. 

If AAVE continues its correction, it could extend the decline toward the weekly support at $203.50.

The Relative Strength Index (RSI) on the daily chart reads 42, below its neutral level of 50, indicating the bears are in control of the momentum. Moreover, the Moving Average Convergence Divergence (MACD) indicator also showed a bearish crossover on Friday, which continues to support a bearish view. 

AAVE/USDT daily chart 

However, if AAVE breaks and closes above the $268.91 level, it could extend the recovery toward the 100-day Exponential Moving Average (EMA) at $283.01.