Aave Governance Picks Up Steam With Two New Proposals

Aave yesterday posted two new governance proposals for its lending protocol, the fourth largest in DeFi with more than $1.3B in deposits, one of which may lead to an increased pool of assets to be managed by token holders.

The first – AIP2 – proposes to take protocol fees collected from Aave V1 to seed the Aave Reserve, rather than using them to burn LEND – the legacy version of the AAVE token – off the open market.

High Slippage

With more than 90% of all LEND having migrated to AAVE, this burning procedure is beginning to incur high slippage on LEND purchases, on top of the fact that outstanding LEND is likely not to be migrated to AAVE.

Image source: governance.aave.com

The new AIP proposes to instead convert protocol fees to stablecoins and deposit them into the Aave Reserve to be governed by AAVE holders. It also proposes an optional amendment to deposit these stablecoins on Aave to earn interest.

The second – AIP3 – proposes to introduce a flash-loan enabled migration tool to make it easier for those with outstanding collateral to migrate from Aave V1 to Aave V2.

Aave V2 Approaches

The two proposals are the latest before the release of Aave V2, which will aim to optimize for lower gas costs, and add delegated credit and a framework for money-markets creation.

Just last week, Delphi Digital proposed an upgraded Aavenomics structure, allowing anyone to stake AAVE to specific collateral pools (like aUSDC, aLINK, etc.) and earn a portion of those fees.

The proposal to create new aDAOs is aimed to make Aave more nimble in its addition of new assets, giving stakers the ability to provide insurance to underlying pools that are likely to have a higher return as a result of being more risky.

Aave has become a breeding ground for innovation through decentralized governance, which may in part be contributing to the token’s 100% price increase over the past 30 days.