Aave Proposes New Tokenomics, Shifting Revenue and Liquidity Management

Aave governance has introduced a proposal to update its tokenomics, focusing on AAVE staking rewards, revenue redistribution, secondary liquidity management, and the deprecation of LEND.

A governance post published by Aave Chan Initiative (ACI) founder Marc Zeller on March 4 details the first phase of implementing the Aavenomics update.

Governance Proposal Seeks to Implement Aavenomics Update

The proposal follows the previous update approved in August 2024 and introduces structural changes affecting AAVE holders and liquidity providers.

According to the post, Aave’s market share has increased every quarter for the past two years. The protocol has also built up significant cash reserves, allowing it to finance updates without depending on token-based incentives.

The proposal includes the creation of an Aave Finance Committee (AFC), a governance-backed entity tasked with treasury management and revenue allocation. The AFC would oversee funds held in Aave’s collector contracts and manage liquidity targets.

Aave’s Financial Position and Proposed Adjustments

A key element of the plan introduces Anti-GHO, a non-transferable ERC20 token designed to replace the existing GHO discount model. Anti-GHO would be distributed to AAVE and StkBPT stakers and could be either burned at a 1:1 ratio against GHO debt or converted into StkGHO.

The protocol’s financial reserves have increased since the Aavenomics approval, despite a downturn in interest rates. The proposal states that the protocol maintains dominance in lending revenue, allowing it to fund incentives with stable assets rather than issuing native tokens.

The post notes that competing platforms have limited cash reserves and rely on token-based incentives. Aave’s ability to offer incentives in stable assets, rather than relying on native token emissions, is positioned as an advantage in the current market environment.

A revision to the secondary liquidity incentives is also proposed. The current system allocates approximately $27 million per year toward maintaining secondary market liquidity. The proposal argues that an alternative approach could sustain liquidity while reducing costs.

A buyback and distribution program is also part of the update. Under this model, governance would allocate funds to purchase AAVE on secondary markets. The plan suggests an initial $1 million per week buyback for six months, with adjustments based on treasury reports and overall budget considerations.

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