David Edwards
Proposals to revamp AAVE’s tokenomics and improve the protocol’s risk management have sparked significant investor interest in the cryptocurrency, according to analysts.
Katie Talati, head of research at Arca, pointed out that the Umbrella proposal could help reduce sell-side pressure on AAVE in the market.
The price of AAVE, the native token of the decentralized lending platform Aave, has surged over 45% to $135 in the past four weeks. This performance has outpaced all other top 100 cryptocurrencies by market value, including bitcoin (BTC) and ether (ETH).
AAVE’s strong price performance has been so notable that the next closest performer, Helium’s HNT, saw a much smaller gain of 26%, according to data from Coingecko.
The rally in AAVE’s price began in late July, following a proposal by Marc Zeller, founder of the Aave-Chan Initiative. He suggested implementing a fee switch that would allocate some of the platform’s net excess revenue to key ecosystem participants and buy back tokens from the secondary market.
“There has been speculation that AAVE might activate their ‘fee switch’ to redistribute the platform’s excess revenue to stakers,” said Joshua de Vos, research lead at CCData, a London-based digital assets data and index provider, in a statement to CoinDesk. He explained that this proposal aims to gather governance feedback on using surplus revenue to buy back tokens and distribute them to AAVE stakers and GHO stablecoin minters.
“This has increased positive market sentiment about the project, raising the possibility of new incentives for holding and staking AAVE,” de Vos added.
Another proposal suggests replacing the current “seize and sell” loan liquidation process, which negatively impacts AAVE’s price, with a “seize and burn” mechanism involving AAVE’s GHO stablecoin and aTokens, which represent assets deposited in the protocol.
Talati explained that the Umbrella proposal seeks to create a new system that would use a variety of assets to cover “bad debt” in the protocol, rather than relying solely on the AAVE token. This change would reduce the selling pressure on AAVE, she noted in a late July report.
Deelabs, a Web3 agency, commented on X (formerly Twitter) that buybacks would generate ongoing bullish momentum for AAVE, and the Umbrella proposal would mitigate the negative price impacts during loan liquidations. “This is just the beginning; there’s much more to this proposal,” Deelabs added.
