Aave proposes major economic overhaul to enhance revenue and sustainability
Aave has proposed a comprehensive update to its economic framework, focusing on revenue distribution, staking incentives, and liquidity management.
The proposal, introduced by Aave Chan Initiative (ACI) founder Marc Zeller on March 4, is considered a pivotal development in Aaves evolution. He stated:
We consider it the most important proposal in our history.
According to the proposal, Aave has consistently expanded its market presence over the past two years, building a strong financial foundation.
Despite fluctuating market conditions, Aave continues to generate robust revenue, with the DeFi protocols liquid reserves surging by 115% to reach $115 million. This strong financial position enables Aave to proceed with its tokenomics upgrade while staying competitive.
A crucial aspect of the proposal is the establishment of the Aave Finance Committee (AFC), a governance-backed entity responsible for managing treasury funds and liquidity strategies.
The AFC will oversee financial allocations within Aaves ecosystem, ensuring sustainable revenue distribution.
The initiative includes contributions from key stakeholders, including Chaos Labs, TokenLogic, Llamarisk, and ACI.
Buyback strategy
The AFC will manage a six-month AAVE buyback program to enhance token value and ecosystem sustainability, allocating $1 million weekly. Meanwhile, the program may expand based on Aaves financial health, pending further governance approval.
The AFC can execute purchases directly or collaborate with market makers to acquire AAVE from secondary markets. These tokens will then be distributed to the ecosystem reserve.
TokenLogic, a financial services provider for Aave DAO, will structure buybacks based on the protocols overall budget. The goal is to eventually matchand surpassall protocol expenditures related to AAVE while maintaining a cautious treasury approach.
With new revenue streams expected in 2025, the AFC may propose increasing the buyback budget. TokenLogic will determine which assets finance these purchases, adjusting strategies monthly based on Aaves treasury composition.
Introducing Umbrella for risk mitigation
Aave currently incurs significant liquidity costs, amounting to $27 million annually. To optimize capital efficiency, the proposal suggests consolidating staking and liquidity management under a new system called Umbrella.
This mechanism is designed to provide unmatched protection against bad debtan area where competitors have largely retreated.
By offering this safeguard, Aave strengthens its position, particularly for institutional participants wary of on-chain risks.
Meanwhile, Umbrella would be integrated across multiple blockchain networks, including Ethereum Mainnet (Core & Prime instances), Avalanche, Sonic, Arbitrum, Gnosis, and the Coinbase-backed Base network.
LEND deprecation
The proposal also seeks to finalize the transition from LEND, Aaves original governance token, before the 2020 upgrade to AAVE.
The plan involves freezing the LEND migration contract to reclaim 320,000 AAVE tokens valued at approximately $65 million.
The proposal noted that the community had ample time to complete the transition and suggested closing the migration process.
Following this, the DeFi protocols governance could decide how to allocate these recovered fundswhether for growth initiatives, security enhancements, or token burns.
Anti-GHO
Aave also proposes launching Anti-GHO, a new rewards mechanism designed to improve incentives for GHO stablecoin holders. This feature would replace the current discount model with a non-transferable ERC20 token.
Anti-GHO would be distributed to AAVE and StkBPT stakers. Holders could burn the token at a 1:1 ratio against GHO debt or convert it into StkGHO.
The issuance of Anti-GHO would be directly linked to revenue generated from GHO. A governance-determined percentage of revenue from GHO facilitators would be allocated toward minting and distributing Anti-GHO.
This approach ensures that incentives remain sustainable and scale proportionally with Aaves growth.
However, implementing Anti-GHO may require additional development and auditing. The feature could be introduced in a future Aavenomics Part Two proposal.
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