"Aave Unveils Game-Changing Tokenomics Upgrade"

Aave, a leading decentralized finance (DeFi) protocol, 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.

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. 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.

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.

The proposal also seeks to finalize the