- Aave is eyeing a programme to reward users who stake its token.
- The buybacks are part of a larger upgrade dubbed 'Aavenomics.'
- Aave founder Stani Kulechov called it a 'Fee Switch on steroids.'
Aave, the second-largest protocol in decentralised finance, jumped this week after a prominent contributor advanced a proposed buyback program directing a portion of the protocol’s revenue to certain investors.
Should the proposal succeed, a new finance committee would be charged with buying $1 million in Aave tokens each week for a six-month period.
Those tokens would be used to reward users who lock up, or stake, their Aave tokens.
‘Aavenomics’
Aave’s token has gained 20% since Aave Chan Initiative on Tuesday advanced the buyback program — part of a major update dubbed “Aavenomics.”
Aave Chan Initiative is a major delegate in Aave DAO, the digital cooperative that controls the Aave lending protocol.
After soliciting feedback, the proposal can be posted on the blockchain for a final vote.
The proposal comes amid a broader effort to push established DeFi protocols to share revenue with tokenholders, bringing so-called governance tokens closer to the company shares to which they’ve long been compared.
Last year, Uniswap’s UNI token jumped 20% after an affiliated foundation said it would let Uniswap DAO members vote on a so-called fee switch that would direct some of the protocol’s revenue to tokenholders who participate in protocol governance.
‘It’s only there as a liquidity sink.'
— EzR3aL
Longtime fee switch proponents hailed the development. But the vote never came to pass.
The foundation indefinitely delayed the vote, saying “a stakeholder raised a new issue relating to this work that requires additional diligence on our end to fully vet.”
CoW Swap, a decentralised exchange on Ethereum, turned on its fee switch in January 2024.
Aave founder Stani Kulechov called Aavenomics a “Fee Switch on steroids” in a post on X.
Incredible run
Aave has been on an incredible run over the past year.
Since the beginning of 2024, the total value of crypto locked in the lending protocol has tripled to $18 billion. In crypto terms, its rise has been even more impressive: Ether deposited in Aave rose 188% in that span.
It has also been among the most profitable crypto businesses, generating almost $500 million in fees over the past year, according to DefiLlama data.
As of thursday, the Aave DAO held $244 million in crypto, half of that in the Aave token, according to TokenLogic.
The Aave Chan Initiative first proposed the Aavenomics update in July 2024. It passed a preliminary vote with near-unanimous approval.
Having hit several milestones in the months since, Aave is ready to more seriously pursue the update, according to Aave Chan Initiative founder Marc Zeller.
“High revenue and high cash reserves put Aave in a comfortable position to initiate the Aavenomics update,” he wrote in the Aave governance forum.
“Current market conditions allow Aave to become even more competitive and gain market share.”
Aavenomics
A revamp of Aave’s insurance model is perhaps the biggest change in the Aavenomics proposal, according to pseudonymous Aave DAO delegate EzR3aL, the cooperative’s largest.
In short, rather than using Aave’s eponymous token to cover any bad debt, the protocol will use a combination of assets, including stablecoins from Tether and Circle.
Rather than staking, or locking up, their Aave tokens, users who want to contribute to Aave’s insurance fund can stake a version of Ether; an Aave-issued stablecoin, GHO; or those issued by Tether and Circle. In return, stakers will earn yield on staked tokens.
This will make Aave more efficient, according to Zeller. That will leave the DAO more money with which to buy back Aave tokens on secondary markets.
Worthwhile effort
Purchased Aave tokens will be used to reward Aave stakers, according to Zeller’s proposal.
EzR3aL said it’s a worthwhile effort, even if Aave staking is no longer used to protect the protocol from bad debt.
“It’s only there as a liquidity sink,” they said of Aave staking should the cooperative approve the update. “Maybe there will be other ways to put it to use.”
That’s because Aave stakers are some of the protocol’s most loyal users, EzR3aL said.
After six months, a subsequent vote can increase the rate of Aave’s buyback program, according to Zeller.
A new Aave Finance Committee “will size these buybacks according to the protocol’s overall budget, with the objective to eventually match—and even surpass—all protocol AAVE spending.”
Aleks Gilbert is DL News’ New York-based DeFi correspondent. You can contact him at aleks@dlnews.com.