In summary
Aave, a leading DeFi platform, plans to activate a fee switch mechanism to enhance revenue management and ensure long-term sustainability.
Aave has a robust treasury exceeding $328 million that will benefit token holders and stakers through fee redistribution.
Meanwhile, the Aave community is evaluating a proposal to peg Ethena’s USDe stablecoin to Tether’s USDT to improve price stability.
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Aave, a leading decentralized finance (DeFi) platform, is preparing to introduce a fee switch mechanism to enhance its economic model.
This move aligns with broader efforts to ensure long-term sustainability and deliver value to the Aave ecosystem.
Aave’s Fee Switch Initiative
On January 4th, Stani Kulechov, founder of Aave, hinted at plans to activate a fee switch initiative. This proposal aims to improve the platform’s revenue management by allowing the Aave DAO to adjust how fees are collected and distributed. Such mechanisms are common in DeFi platforms and often reward token holders and stakers through the redistribution of protocol fees.
Aave’s strong financial position supports this initiative. Aave’s treasury holds nearly $100 million in non-native assets, including stablecoins, Ethereum, and other cryptocurrencies. When including the AAVE token, this figure exceeds $328 million, according to TokenLogic
Marc Zeller, founder of Aave Chan, first introduced the idea of the fee switch last year and emphasized its inevitability earlier this year. According to Zeller, Aave’s net revenue far exceeds operating costs, making this move not only feasible but strategic.
“When your protocol treasury looks like this, and the DAO’s net revenue is more than 2x the operating costs (including grants), a fee switch is not an if, it’s a when,”
Zeller stated.
Aave is the largest DeFi lending protocol, offering users decentralized borrowing and lending options. According to data from DeFillama, over $37 billion in assets are currently locked on the platform.
Aave’s USDe-USDT Proposal Sparks Debate
Meanwhile, the Aave community is also evaluating a more controversial proposal to peg Ethena’s USDe, a synthetic stablecoin, to Tether’s USDT. This change would align USDe’s price with USDT using Aave’s price feed, replacing the current Chainlink oracle. The goal is to mitigate risks associated with price fluctuations and unprofitable liquidations.
USDe stands out from traditional stablecoins like USDT by relying on derivatives and digital assets such as Ethereum and Bitcoin instead of fiat currency reserves. USDe is the third-largest stablecoin, after USDT and USDC, according to data from DeFillama.
Despite considerable support for the proposal, some community members have argued that it could create a conflict of interest, as advisors involved in drafting the proposal have ties to both Aave and Ethena. Critics, such as ImperiumPaper, have suggested that these advisors should recuse themselves to ensure fairness.
“LlamaRisk is on Ethena’s Risk Committee, which comes with monthly compensation. Ethena hired Chaos early on to help design and develop the risk frameworks used by Ethena. Both should recuse themselves from any oversight of USDe’s parameters,”
Imperium Paper stated.
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