Aave Proposes Comprehensive Tokenomics Overhaul

The Aave Chan Initiative (ACI), spearheaded by founder Marc Zeller, has introduced a bold proposal aimed at restructuring the Aave (AAVE) protocol’s tokenomics and enhancing both revenue distribution and liquidity management.

This initiative comes in the wake of a community-endorsed TEMP CHECK and represents a significant evolution in Aave’s strategic vision.

Key Features of the Overhaul

In a recent post on X (previously known as Twitter), Zeller declared that this new proposal reflects five years of development work and innovation.

“We consider it the most important proposal in our history; feel free to read and provide feedback,” he stated.

The proposal introduces the Aave Finance Committee (AFC), a newly formed group focused on managing treasury operations efficiently. The AFC is set to launch a “Buy and Distribute” initiative, which will see the repurchase of AAVE tokens from secondary markets at a rate of $1 million weekly for the initial six months, after which the buyback rate will be reevaluated, with potential increases depending on the protocol’s financial health.

“This is significant. Buybacks will lessen AAVE’s circulating supply, driving scarcity and potentially increasing value. The activation of the fee mechanism will also generate fresh revenue for the protocol, enhancing demand,” a user remarked.

Another transformative change targets AAVE stakers. The proposal removes slashing risks associated with those staking under StkBPT, offering much-needed relief for participants. However, this adjustment involves a gradual tapering of StkBPT rewards, shifting to a hybrid model that emphasizes liquidity incentives over conventional staking rewards.

The proposal also finalizes the migration from LEND to AAVE, redirecting 320,000 AAVE tokens (approximately valued at $65 million) back into the ecosystem reserve. This restoration marks the conclusion of a nearly five-year transition, emphasizing Aave’s focus on sustainable revenue streams rather than inflationary emissions.

A key element of this proposal is the introduction of Anti-GHO, a non-transferable ERC20 token set to replace the current discount mechanism. Anti-GHO serves dual functions: it can be burned on a 1:1 basis to reduce GHO borrowing costs, while holders can convert it to StkGHO through the Merit system, allowing for future redemption of GHO after a cooldown period. Aave has allotted 50% of GHO revenues, nearly $6 million annually, for this program, with 80% directed to AAVE stakers and 20% to StkBPT holders.

Moreover, Aave’s new Umbrella mechanism aims to shield users from adverse debts, while bolstering liquidity across various blockchains. By allocating surplus DAO revenue to incentivize Umbrella aToken stakers, this system will initially protect assets like wETH, USDC, USDT, and GHO, with aspirations for wider coverage.

The proposal is now available for community feedback, and the subsequent phase will include a Snapshot vote. If the community approves, the implementation will commence with an Aave Improvement Proposal (AIP), setting the foundation for these enhanced features.