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Cryptocurrency News Articles

Aave (AAVE) Spikes 7% as DAO Delegate Proposes New Tokenomics and the Protocol Hits a 2-Year High in Borrows

Jul 26, 2024 at 04:26 am

The price of AAVE, the governance token for the largest lending protocol in the decentralized finance ecosystem, spiked on Thursday with the proposal of anew governance proposal aimed at changing the cryptocurrency's tokenomics

The price of AAVE, the governance token for decentralized finance’s largest lending protocol, perked up on Thursday with a new governance proposal to change the cryptocurrency’s tokenomics, coming as the protocol set a two-year high in borrowing.

AAVE was trading at $85.89 at the time Marc Zeller, founder of the Aave Chan Initiative (ACI), a leading service provider for AAVE’s DAO, submitted a governance proposal to update its tokenomics, according to data from CoinGecko. AAVE has since risen to as high as $95.75, before trading at $91.95 at the last check, up 7%.

The governance submission proposes to create a clear roadmap for implementing a fee switch for staked AAVE and having a way for the token “to collect rewards generated from the protocol revenue,” Zeller wrote in the proposal.

If the proposal passes, staked AAVE will still be compensated in AAVE tokens, but a new “Buy & Distribute” program, funded by the protocol’s new excess revenue, will be introduced. The program would obtain AAVE assets on secondary markets, and then distribute those assets to the protocol’s ecosystem reserve.

The new system is expected to introduce “a constant demand side for the AAVE assets on the secondary markets,” according to the proposal.

“The tokenomics update makes the fundamental case for AAVE even stronger,” Walter Teng, an investor on the liquid team at Coinfreeze, a crypto investment firm, wrote in a Telegram message to Unchained. The token “was already trading at 20x P/E, which is cheap even for web2 high growth businesses, but having revenues accrue to stakers ties in value accrual even more,” Teng added.

According to Teng, unlike Lido and Ripple, AAVE has not been named in any Well’s Notices, which are formal letters from the SEC that the agency may be bringing enforcement action. As a result, Teng doesn’t see AAVE encountering regulatory trouble anytime soon.

Once the governance proposal receives community feedback, the submission will move to a snapshot vote, an offchain mechanism to gauge sentiment on the potential changes.

The proposal builds on a related governance proposal, submitted by development firm BGD Labs on Wednesday, that is intended to improve the shortcomings of Aave’s current safety module, the lending protocol’s way of addressing the potential “bad debt” in different liquidity pools.

“Bad debt” is defined as a liquidity pool having more liabilities than available collateral. If passed, this separate proposal will replace the current structure with “Umbrella,” a newer version that allows other assets to be staked and slashed in the event of bad debt. “Slashing” refers to the forfeiture of staked tokens.

Aave Labs Unveils V4 Upgrade Proposal, Introducing a Unified Liquidity Layer and ‘Fuzzy’ Rates

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Original source：unchainedcrypto

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