Aave and Aavenomics: Token Buybacks, Safety Nets, and Revenue Redistribution
Key Takeaways:
- Aave has kickstarted a massive overhaul of its tokenomics design, internally termed Aavenomics to increase the incentive for users to stake Aave tokens and improve the protocols stability.
- The proposal includes a $1 million per week AAVE buyback program as well as a new safety module dubbed Umbrella, designed to protect against large debts.
- It will launch a new token to redistribute revenue from GHO stablecoin to AAVE stakers, dubbed Anti-GHO.
A yet-to-be approved draft proposal, which would overhaul the funds coming in and out of DeFi lending protocol Aave, is currently under consideration. Labeled Aavenomics, the proposed overhaul focuses on creating a better deal for AAVE token holders, augmenting the protocolsfinancial footing, and optimizing its liquidity handling. The proposal, put forth on March 4th by founder Marc Zeller of the Aave Chan Initiative (ACI), is now pending community ratification.
Zeller considers this proposal the most important in Aaves history, with its approval leading to major ramifications for Aave tokenomics.
Introducing New Revenue Redistribution Model Rewards AAVE stakers
The core component of Aavenomics implements a new stage of the revenue redistribution model to ensure better reward for AAVE stakers. The current GHO staker program Merit will remain enabled.
Anti-GHO Token: A major innovation is the introduction of the Anti-GHO non-transferable ERC-20 token earned from AAVE and StkBPT staking. This token is used to pay off GHO debt on the Aave protocol or can be redeemed for StkGHO, which is eligible for the Merit program and other incentives. The Anti-GHO Mechanism will replace the GHO discount system, allowing broader revenue sharing with AAVE stakers.
Anti-GHO Financing: Leave more than half (50%) of GHO revenue to create and distribute Anti-GHO with 80% of Anti-GHO rewards to StkAAVE holders and 20% to StkBPT holders. Given that GHO is currently a $12 million/year protocol revenue generating asset, this makes up roughly $6mm worth of Anti-GHO being distributed to Aave stakers.
Umbrella Safety System: Securing Aave from Monopoly Market Dynamics
One important innovation proposed by Aavenomics is Umbrella, a new afety module that aims to shield Aave users from the effects of bad debt.
- Bank Run Protection: Umbrella ensures protection up to billions, creating a commitment of liquidity that is locked in the protocol until cooldown maturity.
- Focus on Strategic Assets: The Umbrella insurance will cover key assets like wETH, USDC, USDT, and GHO, as well as native assets across various chains, rewarding users with wETH, USDC, USDT, and AAVE while encouraging staking to enhance Aaves security and stability.
- Network deployment: The Umbrella feature will first be turned on key networks including Ethereum Mainnet, Avalanche, Arbitrum, and Gnosis.
The Umbrella model increases user protection as well as security, liquidity and the ability to create new financial products for Aave.
Token Buyback Program AAVE Value Enhancement
The ACI has also set forward a plan for token buyback and redistribution. This proposal would assign the Aave Finance Committee (AFC) the role of buying AAVE tokens onthe secondary market and transferring them into the ecosystem reserve.
- $1M Weekly Buyback: In the beginning, the AFC will be required to buy back $1M USD worth of AAVE on a weekly basis for the first six months. This program would be funded from the treasury holdings of Aave, the size of the buybacks could be tailored to the overall financial health of the protocol.
- Reducing Liquidity Costs: Cost-Reduce Aave secondary liquidity incentives from you over $27 million yearly. The roadmap also includes a more efficient mechanism attaching staking with active management, before transitioning to purchasing AAVE on-market instead of distributing it.
Closing the LEND Chapter
The proposal also corrects a bit of Aaves history by formally deprecating the LEND-to-AAVE migration contract. LEND is Aaves original governance token before the platforms upgrade to AAVE in 2020.
- Reclaiming Unclaimed Tokens: Reclaiming approximately 320,000 unclaimed AAVE tokens (~$65 million) and redirecting them to the ecosystem reserve will allow the community to focus entirely on AAVE, a move years in the making.
Aave: The Dominator of DeFi Lending
The move towards Aavenomics coincides with Aaves establishment as the largest DeFi lending protocol. According to DefiLlama, DeFi lending protocols hold $39.5 billion in TVL, up from just $10.6 billion at the end of 2022. Aave has the highest TVL of $17.5 billion across 14 blockchains.
Despite market fluctuations, Aave continues to generate strong revenue, recently earning $8.3 million in fees over seven days, with net deposits hitting $33.4 billion on Jan. 25surpassing 2021 levels. Its influence extends beyond its ecosystem, as projects like Kamino Finance have adopted Aaves model on Solana. While many DeFi projects gain traction, Aaves size and revenue cement its authority in the space.
The AFC: A New Era in Treasury Management
In order to manage Aaves treasury properly and drive forward this ambitious set of changes, we put forward the need for an Aave Finance Committee (AFC) to be created.
- Key Responsibilities: The AFC will oversee Aaves collector contract holdings in relation to liquidity targets and budget allocations for safety and growth initiatives. It will also manage the AAVE buyback program and coordinate capital distribution across multiple networks.
- Experienced Representation: With the AFC being composed of representatives from critical Aave DAO services such as Chaos Labs, Tokenlogic, Llamarisk, and ACI. It would work on 3/4 signature basis, making it evenly balanced between risk management, growth strategy and treasury expertise.
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