Aave (AAVE), the governance token for the popular decentralized lending protocol, has seen significant momentum this summer, largely driven by a proposed update to its economic model. The market has responded positively, with AAVE’s price nearly doubling against ETH in the past month.
Overview of the Proposed Changes
The new proposal, referred to as “Aavenomics,” suggests significant changes to the AAVE token’s economic model. One of the key changes is the elimination of the safety module, where AAVE stakers currently earn inflationary yield by risking their tokens as a backstop in case of market shortfalls, such as bad debt.
Instead of relying on the safety module, the proposal suggests redirecting a portion of the revenue generated by the Aave lending protocol to those staking stablecoins and a few other assets. This shift is expected to reduce risk for AAVE holders by eliminating the possibility of emergency token sales by the DAO and to increase potential rewards by lowering AAVE inflation.
The proposal includes a “fee-switch” mechanism, which has been a topic of debate within the DeFi community for years. If implemented, Aave would be among the largest protocols to adopt this approach.
Strong Fundamentals:
- AAVE’s Price Movement: Since the proposal was announced, AAVE has increased by 50% in dollar terms. This rise reflects the market’s optimistic view of the proposed changes and their potential impact on the value accrual for the AAVE token.
- Platform Growth: The total assets supplied to Aave’s Mainnet remain close to their all-time high, showing resilience despite broader market fluctuations. Additionally, the launch of the Aave Lido market attracted $300 million in capital within just three days, indicating strong demand for Aave’s offerings.
Aave’s market share in the DeFi lending space has also risen to 70%, with $7.4 billion in active loans, nearly 10 times more than its closest competitors.
