Aave Reviews its Tokenomics, Launches New Governance Token

Aave money market protocol finally releases its new tokenomics structure, it has now launched AAVE,new governance token to rule its $400 million ecosystems

By · Jul 30, 2020 . 6min read

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Aave money market protocol finally releases its new tokenomics structure, it has now launched AAVE a new governance token. It aims to use the new token to rule its over $400 million ecosystems.

In a recent blog update, Aave posted the new token structure and how it will impact its growing ecosystem. A flashpaper details how the migration from LEND to AAVE will happen.

LEND which is initially 1.3B in supply will become 16M AAVE after this migration. The migration will see LEND holders redeeming 100 LEND per 1 AAVE. The new token structure will be prorated between the community and the Ecosystem Reserve. LEND holders will redeem 13M AAVE tokens and Aave Ecosystem Reserve will hold 3M AAVE tokens for protocol incentives.

AAVE new governance token flashpaper detailing how the toekn migration and staking will occur.

AAVE Staking

AAVE Staking will usher in a Safety Module to help secure Aave. The implication is that AAVE tokens will act as insurance against shortfall events like Smart contract risk, which Vitalik recently says DeFi protocol users underestimate. Liquidation risks such as liquidators not capturing liquidation opportunities promptly, or low market liquidity of the principal asset to be repaid. Lastly, Oracle failure risk are among the classes of risks the Safety Module helps to hedge against.

For their efforts, Stakers earn AAVE as well as a percentage of protocol fees as obtainable in other DeFi platforms. It is introducing Balancer to help boost market liquidity with AAVE/ETH pair.

AAVE stakers will be able to trade their stakes after a cooldown period. All rewards accrue in real-time and are distributed as AAVE is withdrawn or transferred from the Safety Module.

Aave Protocol Governance will happen using AAVE token through Proposals.

As typical of DeFi protocols, Aave ecosystem participants will through a decentralized governance method issue incentives for borrowing on the platform as well vote to support dapp on the Aave ecosystem.

Protocol users will propose improvements using a dedicated forum governance.aave.com and ratified on-chain by Aave Improvement Proposals (AIPs) using AAVE.

With this, Aave now has followed the trend set by its peers such as Compound Finance and Synthetix. Compound released COMP as its governance token sparking an industry frenzy. COMP within hours of trading rose to $372 before falling by more than 55% in a short period.

Data from Defi Pulse shows DeFi is presently a $3.8 billion market with a potential to keep growing with updates likes this from Aave. Many are now bashing DeFi calling it a bubble that will end like 2017 ICO season. But is DeFi really a bubble?

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