Aave Unveils Aavenomics: $6M in Anti-GHO Rewards, $1M Weekly Buyback

Aave, a prominent decentralized finance (DeFi) lending protocol, has initiated a significant overhaul of its tokenomics design, dubbed “Aavenomics.” This comprehensive proposal aims to enhance the incentives for users to stake Aave tokens and bolster the protocol’s stability. The proposal, introduced by Marc Zeller of the Aave Chan Initiative (ACI), includes several key components designed to improve the financial health and liquidity management of the Aave protocol.

The core of “Aavenomics” is a new revenue redistribution model that ensures better rewards for AAVE stakers. This model introduces the “Anti-GHO” non-transferable ERC-20 token, which can be earned from AAVE and StkBPT staking. The Anti-GHO token can be used to pay off GHO debt on the Aave protocol or redeemed for StkGHO, which is eligible for the “Merit” program and other incentives. This mechanism replaces the GHO discount system, allowing for broader revenue sharing with AAVE stakers. More than half of the GHO revenue will be used to create and distribute Anti-GHO, with 80% of the rewards going to StkAAVE holders and 20% to StkBPT holders. Given that GHO is currently a $12 million/year protocol revenue generating asset, this amounts to roughly $6 million worth of Anti-GHO being distributed to Aave stakers.

Another significant innovation proposed by “Aavenomics” is the “Umbrella” safety module. This module is designed to protect Aave users from the effects of bad debt by ensuring protection “up to billions,” with a commitment of liquidity locked in the protocol until “cooldown maturity.” The “Umbrella” insurance will cover key assets such as wETH, USDC, USDT, and GHO, as well as native assets across various chains. Users will be rewarded with wETH, USDC, USDT, and AAVE, encouraging staking to enhance Aave’s security and stability. The Umbrella feature will first be deployed on key networks including Ethereum Mainnet, Avalanche, Arbitrum, and Gnosis. This model increases user protection, security, liquidity, and the ability to create new financial products for Aave.

The ACI has also proposed a token buyback and redistribution plan. This plan assigns the Aave Finance Committee (AFC) the role of buying AAVE tokens on the secondary market and transferring them into the ecosystem reserve. Initially, the AFC will be required to buy back $1 million USD worth of AAVE on a weekly basis for the first six months. This program will be funded from the treasury holdings of Aave, and the size of the buybacks could be tailored to the overall financial health of the protocol. The roadmap also includes a more efficient mechanism attaching staking with active management, before transitioning to purchasing AAVE on-market instead of distributing it. This move aims to reduce liquidity costs by over $27 million yearly.

The proposal also addresses a historical aspect of Aave by formally deprecating the LEND-to-AAVE migration contract. LEND was Aave’s original governance token before the platform’s upgrade to AAVE in 2020. By reclaiming approximately 320,000 unclaimed AAVE tokens and redirecting them to the ecosystem reserve, the community can focus entirely on AAVE, a move years in the making.

The move towards “Aavenomics” coincides with Aave’s establishment as the largest DeFi lending protocol. 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. 25—surpassing 2021 levels. Its influence extends beyond its ecosystem, as projects like Kamino Finance have adopted Aave’s model on Solana. While many DeFi projects gain traction, Aave’s size and revenue cement its authority in the space.

To manage Aave’s treasury properly and drive forward this ambitious set of changes, the proposal suggests the creation of an Aave Finance Committee (AFC). The AFC will oversee Aave’s 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. The AFC will be composed of representatives from critical Aave DAO services such as Chaos Labs, Tokenlogic, Llamarisk, and ACI, working on a 3/4 signature basis to ensure a balanced approach between risk management, growth strategy, and treasury expertise.