Flashpaper

A synthesis of the Aavenomics

Key Summary

  • Aavenomics present a governance framework to grant key decision making to AAVE tokenholders.

  • LEND will migrate to AAVE, via a Genesis Governance vote, at a rate of 100 LEND per 1 AAVE.

  • The total supply of AAVE will be 16M tokens.

  • 13M AAVE tokens will be redeemed by LEND token holders.

  • 3M AAVE tokens will be allocated to the Aave Ecosystem Reserve.

  • Aave will launch a Safety Module (SM) for staked AAVE to act as collateral of last resort.

  • Aave will introduce safety and ecosystem incentives to reward protocol growth.

  • Aavenomics introduces Aave Improvement Proposals (AIPs) for future protocol upgrades.

  • Governance defines a set of Policies by which the Aave Protocol and Money Markets abide by.

Introduction

This Flash Paper is a synthesis of Aavenomics - a formalized path to the decentralization and autonomy of the Aave Protocol.

Acting as a catalyst for growth, Aavenomics introduces a future-proof framework leveraging financial incentives and multilevel governance to prioritize the safety and sustainability of Aave.

This website is the formal documentation detailing the specific inner workings of the topics.

AAVE Token Migration

The migration to AAVE marks the first step in transitioning governance power from the Aave core team to AAVE token holders.

LEND will migrate to AAVE at a rate of 100 LEND per 1 AAVE, with the supply changing from 1.3B LEND to 16M AAVE. Of the 16M AAVE being issued, 13M AAVE tokens will be redeemed by LEND holders and 3M AAVE tokens will be held in an Aave Ecosystem Reserve for protocol incentives.

To start the migration, LEND will be used to vote on the Genesis Governance poll to deploy the smart contracts responsible for converting LEND to AAVE.

AAVE Staking

Aave will be secured by a Safety Module (SM), a staking mechanism for AAVE tokens to act as insurance against Shortfall Events. Stakers earn AAVE as Safety Incentives (SI) along with a percentage of protocol fees.

Staking will feature plain AAVE alongside an AAVE/ETH pair. The latter will leverage Balancer to incentivize market liquidity and earn BAL along with trading fees.

Staked AAVE will be freely tradable after a cooldown period. All rewards accrue in real-time and are distributed as AAVE is withdrawn or transferred from the Safety Module.

AAVE Incentives

The Aave Protocol will be able to distribute Ecosystem Incentives (EI) for supplying and borrowing assets from the protocol.

The community may also decide to allocate rewards to applications built on top of the Aave ecosystem. The decision to integrate new incentives will be performed through decentralized governance.

Aave Protocol Governance

Aavenomics are fuelled by governance forums at governance.aave.com and ratified through on-chain Aave Improvement Proposals (AIPs) using AAVE. This process looks to ensure extensive discussion is had on proposals prior to being pushed on-chain. Both AAVE held in cold storage and AAVE staked via the Safety Module can be used to vote on AIPs or be delegated to Aave protocol politicians to vote on your behalf.

Aave Policies

Policies are governance-defined rules that control the protocol and its individual markets. Markets are free to define their own policies so long as they comply with Protocol Policies.

Protocol Policies govern the overall behavior of Aave including risks, improvements and incentives. Market Policies define the context of each market within the Aave protocol, including supported assets, LTV ratios, and interest rate models.

Shifting Power Dynamics

Aavenomics reward those bearing the most risk with the highest incentives. Aavenomics describes the process in which AAVE stakers bear any deficits along with detailed examples and explanations of protocol policies and governance interactions.