On March 4, Aave DAO service provider Marc Zeller released a governance proposal seeking governance approval, formally known as the Aave Request for Final Comments (ARFC), which aims to reshape Aaves economic model. It is not a simple adjustment to the existing mechanism, but a fundamental upgrade involving revenue distribution, incentive mechanisms, and optimization of long-term stability.
Only the first part of the proposal has been released and is currently in the stage of soliciting opinions. The AAVE token has risen to a high of US$216 since the proposal was released. The current AAVE price is US$215, up 15.5% in 24 hours.
Interpretation of the proposal
Marc Zeller said at X that this is the most important proposal in Aaves history, which shows how influential it is. The core pillars of the proposal include:
1. Income redistribution mechanism
2. AAVE Token Repurchase and Distribution Plan
3. Umbrella security mechanism
4. LEND Token Retirement
According to the proposal, Aave has continued to expand its market presence over the past two years and built a solid financial foundation.
Despite volatile market conditions, Aave has maintained strong revenue growth, with liquid reserves for its DeFi protocol growing 115% to $115 million. A strong financial position enables Aave to advance token economics upgrades while remaining competitive.
Establishment of the Aave Finance Committee
One of the core elements of the proposal is the establishment of the Aave Finance Committee (AFC), which will serve as an important entity under the Aave governance framework and be fully responsible for managing Aaves treasury and liquidity strategy. The establishment of AFC marks Aaves move towards a more professional and transparent path in financial management.
The main responsibilities of the AFC include overseeing all financial allocations within the Aave ecosystem, ensuring that funds are used reasonably and efficiently, and achieving sustainable growth in revenue. In addition, the AFC will formulate and implement Aaves liquidity strategy to ensure that the protocol maintains sufficient liquidity under various market conditions. Most importantly, the AFC will be responsible for evaluating and managing the various financial risks faced by the Aave protocol, including market risk, credit risk, and operational risk.
To ensure the professionalism and effectiveness of the AFC, the committee will be supported by core stakeholders including Chaos Labs, TokenLogic, Llamarisk and ACI. These institutions have rich experience and expertise in the DeFi field and will provide strong support for AFCs decision-making.
Aave’s revenue dividend mechanism benefits stakers
The most anticipated content in this proposal is the major adjustment to the protocol’s revenue distribution mechanism. Aave plans to distribute part of the revenue generated by the protocol to stkAAVE stakers, more directly linking the success of the protocol with the interests of AAVE token holders.
Specifically, Aave plans to introduce a Fee Switch mechanism. This mechanism will allow Aave to release excess revenue generated by the protocol (such as lending fees) from the treasury and redistribute it to AAVE stakers and users, rather than simply accumulating such revenue in the treasury.
In order to further optimize the incentive mechanism and enhance the attractiveness of the GHO stablecoin, Aave also plans to launch Anti-GHO as a new incentive mechanism for GHO to replace the existing discount model. Anti-GHO is a non-transferable ERC 20 token whose issuance will be directly linked to the revenue generated by GHO.
At the beginning of GHOs launch, Aave used the Merit plan to test dividend incentives based on stability fee income, with an annual distribution scale of up to 12 million US dollars. Today, the plan has achieved self-sufficiency and no longer requires additional stablecoin funding support. This mechanism links income and incentives, which not only enhances AAVEs staking income, but also avoids the defect of lack of motivation in the bull-bear transition cycle caused by simple rate discounts.
The specific allocation mechanism is as follows:
1. GHO fees generate Anti-GHO: 50% of GHO fees will be used to generate non-transferable Anti-GHO tokens.
2. The generated Anti-GHO tokens will be distributed according to the following ratios: 80% to StkAAVE holders (AAVE stakers), and 20% to StkBPT holders (Balancer pool stakers).
3. The original GHO fee discount will be cancelled and replaced by profit distribution based on the protocol income.
Anti-GHO holders have two ways to use it:
1. 1:1 burning to offset GHO debt: Holders can burn Anti-GHO at a ratio of 1:1 to offset their GHO debt.
2. Convert to StkGHO: Holders can also choose to convert Anti-GHO to StkGHO to obtain GHO staking income.
However, the implementation of Anti-GHO still requires additional development and auditing, and may be officially enabled in the subsequent Aavenomics Part Two proposal.
Open repurchase
In addition to revenue distribution, Aave also plans to launch an ambitious AAVE token buyback program. In the next six months, Aave will invest $1 million per week to buy back AAVE tokens, and this plan will be overseen and executed by the newly formed Aave Finance Committee (AFC).
AFC can execute the repurchase directly or cooperate with market makers to purchase AAVE from the secondary market. The repurchased tokens will be allocated to Aaves ecological reserve to support the long-term development of the ecosystem.
As the financial services provider to Aave DAO, TokenLogic will plan the buyback strategy based on the protocol’s overall budget, with the goal of ultimately covering and exceeding all AAVE-related expenses within the Aave ecosystem while maintaining prudent fund management.
As Aave expands new revenue sources in 2025, AFC may propose to increase the buyback budget. TokenLogic will adjust funding sources and strategies on a monthly basis based on the asset allocation of the Aave treasury.
Improve the security and efficiency of protocol operation
In order to further enhance the security of the protocol and improve capital efficiency, Aave plans to launch the Umbrella mechanism. Umbrella will integrate pledge and liquidity management to effectively prevent bad debt risks and liquidity crises. This is seen as a major upgrade to the existing Safety Module.
The main advantages of the Umbrella mechanism include:
1. Powerful bad debt protection: Umbrella will provide Aave with a powerful bad debt protection mechanism to enhance its risk resistance in the face of market fluctuations and potential risks, especially in the context of frequent hacker attacks in the DeFi field.
2. Attract institutional users: Umbrella’s institutional risk management capabilities will help attract more institutional users to participate in the Aave ecosystem and enhance the security of the protocol in on-chain asset management.
3. Cross-chain deployment: The Umbrella system will be deployed across multiple blockchain networks such as Ethereum, Avalanche, Arbitrum, Base, etc. to achieve wider applicability and higher security.
In addition, the Anti-GHO mechanism will also be integrated into Umbrella, which will make the repayment of GHO debt or conversion into interest-bearing StkGHO simpler and more convenient. Aave currently faces $27 million in liquidity costs each year, and the introduction of the Umbrella mechanism will effectively improve capital efficiency.
Finally, the proposal also plans to completely retire the LEND token. LEND was Aaves original governance token before it was upgraded to AAVE in 2020. Since 2020, the LEND token has been in a transition period to migrate to AAVE.
The proposal plans to completely end the LEND token by freezing the LEND migration contract and recover 320,000 unredeemed AAVE tokens (currently worth about $65 million). The proposal points out that the community has had enough time to complete the token conversion, so it is recommended to formally close the migration process. The specific use of the recovered funds will be determined by Aave governance, such as for ecological growth, security upgrades, or token destruction.
This move will help clean up the historical legacy of Aave governance and improve the efficiency of the protocol. At the same time, releasing these underutilized funds will further enhance Aaves financial strength and provide more sufficient resources for its future development.
New blue chips in troubled times? What does the community think of this proposal?
Currently, the proposal is still in the ARFC (opinion collection stage), and the community can discuss it in the Aave governance forum. The next step of the proposal will be to collect community feedback and strive to enter the Snapshot offline vote after reaching a consensus. If passed, the proposal will officially enter the on-chain governance proposal (AIP). If it is successfully implemented, the repurchase plan will be launched in 2025.
Through this submission, community members calculated that AAVE holders are expected to receive an annualized return of about 3%. Although this rate of return does not seem outstanding in absolute terms, Aave has established its core position in the entire DeFi ecosystem. With its stable operation, continuous growth and clear profit model, it has shown similar characteristics to high-quality blue-chip stocks in the traditional financial market, attracting the attention of more and more rational investors.
In the economic downturn cycle, such assets are usually highly defensive and can provide investors with relatively stable returns and a secure holding experience. It is particularly noteworthy that with the gradual relaxation and recognition of the global regulatory environment on the DeFi field, the value of DeFi assets is likely to be re-evaluated. Therefore, redefining Aave as a blue chip asset under the new order of the cryptocurrency market is fully reasonable and forward-looking. It not only represents a sound investment strategy, but also indicates a certain trend in the future development of the DeFi field.
Separately, David Sacks, White House AI and cryptocurrency director, said the so-called “DeFi broker rule” could be rescinded — a last-minute attack on the crypto community by the Biden administration.
The DeFi Broker Rules are a regulatory framework for decentralized finance (DeFi) intermediary service providers (such as trading platforms, lending protocols, etc.) to ensure compliance, user protection and risk management. The core content includes anti-money laundering (AML), user identity verification (KYC), smart contract audits, fund security and transparency requirements.
Canceling the DeFi Broker Rule means that DeFi protocols are not required to report and disclose customer information, which reduces the regulatory pressure on DeFi and is also a good thing for Aave.
