On March 4, the Aave community proposed a new plan to update its token economic model, which not only aims to strengthen its competitive advantage in the liquidity battle but also accelerate the transition of DeFi towards a sustainable value capture model.

Author: Nancy, PANews

Following the adoption or proposal of token buyback strategies by DeFi protocols such as Sky, Uniswap, Ether.Fi, Synthetix, and Ethena, the decentralized lending leader Aave is also set to join the ranks of DeFi dividend programs.

On March 4, the Aave community put forward a new heavyweight proposal to update its token economic model, which includes launching AAVE buybacks, redistributing excess protocol revenue, terminating the LEND token migration, and upgrading secondary liquidity management. As a result, CoinGecko data shows that AAVE has increased by 21.3% in the past 24 hours.

Aave plans to initiate a dividend model, proposal still in the opinion collection stage

In the liquidity competition of DeFi, Aave has firmly held the top position in the DeFi lending sector due to its abundant cash flow and innovative capabilities.

Aave's new Aavenomics proposal also reveals that over the past two years, Aave's market share and revenue have been steadily increasing, including the supply of the GHO stablecoin surpassing $200 million and the cash reserves of Aave DAO reaching $115 million. This growth is attributed to Aave's near-monopolistic revenue dominance in the lending protocol space and its continuous investment in innovation, such as the recent upgrade to Aave 3.3 and the upcoming launch of the Umbrella self-protection system. Notably, Aave expects its revenue in 2025 to significantly increase due to SVR (volatility protection mechanism), potentially exceeding $10 million annually, which could provide funding support for the implementation of Aavenomics.

As current investors increasingly focus on the value capture capabilities of DeFi protocols, many DeFi projects are beginning to shift towards dividend or buyback models to enhance token value return capabilities. Aave's buyback proposal showcases several advantages, including strong cash reserves, a diversified revenue structure, high-quality asset rewards, and efficient governance and execution.

The proposal outlines the following key initiatives:

· Token buyback and distribution: Aave plans to launch a "Buy and Distribute" program, utilizing excess protocol revenue to buy back AAVE tokens in the secondary market or through market maker partners, and distribute them to the ecosystem reserves. The initial plan is to execute this at a scale of $1 million per week for six months, totaling $24 million for buybacks, with adjustments made thereafter based on the overall protocol budget. This mechanism aims to reduce circulating supply, enhance token value, and provide a sustainable source for the DAO's AAVE budget.

· Establishment of Umbrella and AFC: The proposal indicates that Umbrella is a protection mechanism and growth tool for Aave users, suggesting that part of Aave DAO's excess revenue be redistributed to Umbrella aToken stakers. To implement this plan, the proposal suggests forming the Aave Financial Committee (AFC), composed of Chaos Labs, Tokenlogic, Llamarisk, and ACI, with a 3/4 signature threshold. The AFC will be responsible for managing the collector contract assets, defining Umbrella liquidity targets, and executing budget allocations through Tokenlogic's monthly financial management AIP.

· Redistribution of protocol revenue: The proposal suggests creating an ERC20 token to enhance rewards for Aave ecosystem stakers, generated by AAVE and StkBPT stakers. The initial generation amount of Anti-GHO is set at 50% of GHO revenue, with 80% allocated to StkAAVE holders and 20% to StkBPT holders. Based on the current GHO lending rates and supply, Aave distributes approximately $12 million in protocol revenue to GHO stakers annually.

· Termination of LEND migration: After nearly five years of operation of the LEND to AAVE migration contract, Aave will close this channel and reclaim the remaining 320,000 AAVE (approximately $65 million), injecting it into the ecosystem reserves to provide more funding for growth and security.

· Optimization of secondary liquidity management: Aave DAO currently allocates about $27 million annually (based on current AAVE valuation) from ecosystem reserves for secondary liquidity incentives. The proposal suggests adopting a hybrid model, combining StkBPT staking with direct management by the Aave Liquidity Committee (ALC) to achieve greater liquidity at a lower cost.

However, the proposal is still in the opinion collection stage, and if consensus is reached, it will be upgraded to the Snapshot stage. If approved, Aave will authorize the establishment of the AFC and gradually implement it through AIP.

DeFi may welcome favorable policies, White House supports the repeal of "DeFi broker rules"

As the Aave proposal is released, the DeFi industry may welcome a breathing and growth window due to favorable policies.

According to the Executive Policy Statement released by the White House Office of Management and Budget (OMB), the U.S. government supports S.J. Res. 3, a bill initiated by Senator Ted Cruz and others, aimed at overturning the IRS's rule on "reporting total revenue for digital asset sales brokers."

It is understood that this rule was originally proposed by the Biden administration at the end of 2024, expanding the definition of brokers to include software related to DeFi protocols and requiring some DeFi users to report total revenue from crypto transactions and taxpayer information. The White House believes that this regulation improperly increases the compliance burden on U.S. DeFi businesses, hinders innovation, and raises privacy concerns. The statement clearly indicates that if S.J. Res. 3 is submitted to the president, senior advisors at the White House will recommend that the president sign the bill into law to repeal the IRS's related regulations.

In response, U.S. Senator Lummis commented, "The IRS's regulations on DeFi fundamentally misunderstand how decentralized technology operates. I have witnessed how regulatory clarity—rather than overregulation—can promote innovation. These stringent federal regulations could push U.S. crypto entrepreneurs overseas when we should be nurturing this industry domestically. I am honored to work with Senator Ted Cruz to repeal this attack on the crypto community."

The White House's support signal may indicate a significant shift in the direction of crypto policy. For the DeFi industry, if the rules are repealed, DeFi projects, including Aave, will be exempt from cumbersome reporting obligations and reduced operational compliance costs, preserving decentralized characteristics, and potentially bringing back capital and talent, further stimulating the wave of DeFi innovation in the U.S.

As the DeFi industry may welcome a more relaxed development environment, Aave's innovation in token economics can not only strengthen its competitive advantage in the liquidity battle but also accelerate the transition of DeFi towards a sustainable value capture model, where real income is not only a financial metric but also the cornerstone of building a sustainable ecosystem.

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