Aave Governance consists of the proposition and decision-making process for the different risk parameter changes, improvements and incentives that constitute the policies, and upgrades to governance itself. All future decisions governing the protocol will be enacted through this procedure.
The AAVE token empowers holders to collectively act as governors of the protocol by enabling them with the capability to vote and propose.
The below diagram shows the architecture of the Aave Governance.
As described in the Policies section, the Policies of the Aave ecosystem affect all markets, therefore, control over them resides in the AAVE token. These market-wide parameters are just constraints; they define the ranges for which specific configurations of markets can be defined. The importance of providing constraints to the market parameters by using protocol policies materializes in the protection guaranteed by the Safety Module. This results in markets that adhere to the Policies automatic protection from Shortfall Events.
Market specific parameters defined in the Protocol Policies can be adjusted to the use case of the market and/or interests of the parties involved in it (market creators, liquidity providers, borrowers, liquidators etc.).
The different components of the protocol include capabilities to quantify the involvement of the different participants within a market, with metrics like the interest earned over time by liquidity providers for an asset, the interest repaid by a borrower or the amounts liquidated, amongst others.