Aave Updates Tokenomics: More Profits, Lower Risks — Details

The Aave community, one of the largest DeFi protocols, has proposed a radical update to the AAVE token economic model. Aave founder Stani Kulechov called the new system "fee switch on steroids", while Aave Chan Initiative lead Marc Zeller described it as "the most important proposal in the project's history."

Key Changes

On March 4, Aave DAO introduced the Aavenomics proposal, featuring several major upgrades:

• Aave Finance Committee (AFC): A new governance body overseeing protocol revenue distribution.
• Umbrella Security System: A revamped protection mechanism for risk management and liquidity stability.
• No More Staker Token Burns: AAVE stakers will no longer risk losing their tokens as part of protocol insurance.
• AAVE Buyback: Over the next six months, $26 million worth of AAVE will be repurchased, followed by quarterly buybacks.
• Expanded Rewards Program: Excess Aave revenue will be redistributed to Atokens holders.

Growth Strategy

According to DeFiLlama, Aave remains the second-largest DeFi platform, with $18.28 billion TVL and a market cap of $2.8 billion. It dominates the lending sector, with its closest competitor, JustLend, at only $3.64 billion TVL.

• Aave DAO currently holds $115 million in liquid assets.
• The Smart Value Recapture (SVR) system by Chainlink is expected to increase protocol revenue.

Umbrella Security & New Staking Model

The Umbrella system aims to enhance security and introduce new earning opportunities:

• Merit Program: Allocates $12 million annually to GHO stakers.
• Anti-GHO Token: A non-fungible ERC-20 that can be burned to repay loans or converted into StkGHO for rewards.
• GHO Revenue Allocation: Initial payouts of $6 million will be split between StkAAVE holders (80%) and Balancer Pool Token providers (20%).

End of LEND to AAVE Conversion

After nearly five years, the migration of LEND tokens to AAVE is ending. The remaining 320,000 AAVE (~$65 million) will be transferred to the DAO treasury.

"The community had years to convert, so closing this process is a fair decision," stated the announcement.

The funds may be used for protocol development, security enhancements, or token burns, subject to DAO voting.

What’s Next

The new tokenomics could boost Aave’s resilience and profitability while strengthening user protection. The introduction of Umbrella and expanded rewards may attract new investors, driving demand for AAVE.

• Following the announcement, AAVE surged 23.14% to $214.46.
• However, full implementation of Aavenomics requires DAO approval, which could influence future price action.

This post is for informational purposes only and is not an ad or investment advice. Please do your own research making any decisions.