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 Aave’s 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 protocol’s 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 Aave’s 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 Aave’s 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 protocol’s overall budget. The goal is to eventually match—and surpass—all 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 Aave’s 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 debt—an 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, Aave’s 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 protocol’s governance could decide how to allocate these recovered funds—whether 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 Aave’s 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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