Protocols are competing for liquidity by incentivizing depositors through the means of protocol tokens issuance. The Aave Protocol will also incentivize its users through a scheduled distribution to benefit liquidity providers and users through the Protocol Ecosystem Incentives from the Aave Reserve.
The total supply of AAVE is 16M, of which 13M are redeemable by LEND holders with a ratio of 100 LEND per 1 AAVE.
The remaining 3M will be allocated to the Aave Reserve and controlled by the AAVE token holders, to incentivize the Aave Ecosystem growth and development.
Initial Proposal of Aave Reserve Usage
Over the upcoming month, multiple AIPs will be submitted to organize the initial distribution of the AAVE Token to the ecosystem and will be voted on by AAVE holders, they will notably include :
AAVE Safety Incentives,
AAVE Liquidity Incentives.
This initial allocation of AAVE through the Ecosystem Incentives and Safety Incentives is the most direct way to distribute governance power to the users while bootstrapping the liquidity and safety of the protocol.
An initial deposit of AAVE Token from the Aave Reserve to the Safety Module will also be proposed for the protocol to sponsor its own safety and bootstrap the AMM liquidity.
The reserve factor allocates a share of the protocol's interests to a collector contract as reserve for the ecosystem. This reserve is new to V2, used to sustain the DAO and pay protocol contributors. It is made out of various assets including AAVE.
For more information on the Reserve Factor and the current collector address, see the Risk Docs.