DeFi Lender Aave Rolls Out Governance Token on Path to Decentralization

Aave will transfer ownership of the protocol to a “genesis governance” built and approved by LEND token holders. It will also swap LEND tokens for AAVE.

AccessTimeIconJul 29, 2020 at 4:08 p.m. UTC
Updated Sep 14, 2021 at 9:37 a.m. UTC
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Money protocol Aave is going fully autonomous, according to documents shared with CoinDesk.

Formerly EthLend, Aave will transfer ownership of the protocol over to a “genesis governance” built and approved by token holders. The platform’s native lend (LEND) token will also swap for the new aave (AAVE) token, documents show.

Aave launched its Ethereum-based money market in January 2020 after completing a 2017 initial coin offering (ICO) raising $16.2 million, according to Messari. EthLend originally launched as a peer-to-peer (P2P) lending protocol but switched to a pooled protocol that allows for more dynamic asset listings, network liquidity and variable interest rates.

The platform was one of the first to include the novel decentralized finance (DeFi) product flash loans this past spring. These financial products allow users to make outsized positions on trades without any downside.

LEND tokens swapped for AAVE

The 1.3 billion LEND tokens will swap with the newly minted AAVE at 1:100 for a total of 16 million AAVE. Of the 16 million, 3 million will be issued to a new “Aave Reserve” for protocol improvements under the auspices of the community, Aave writes. The rest will be issued to current LEND holders.

Market Policies (for determining asset listings, loan-to-value (LTV) ratios and interest rate modeling) and Protocol Policies (for risk, general improvements and platform incentives) will be determined by community votes, formalized in Aave Improvement Proposals (AIPs). 

Liquidity mining

The Aave platform will incorporate en vogue liquidity mining, a method to attract assets to the platform. The team said AAVE tokens will be accrued to users for deposits into the protocol’s backstop, the Safety Module (SM). 

Aave’s SM provides security for the platform in the case of a catastrophic failure from a major liquidation event, smart-contract bug or pricing data mistake. Aave will use Chainlink’s oracle network for pricing assets. 

The SM is constructed via Balancer, another DeFi protocol called an automatic market maker (AMM). These protocols let users swap tokenized assets such as ether and dai (ETH/DAI) in a permissionless manner. Users will also gain Balancer (BAL) tokens, plus various network fees for SM depositors, Aave says.

Aave isn’t the only DeFi platform to migrate toward autonomous and decentralized governance. 

The Maker Foundation, which oversees MakerDAO, has been slowly moving toward full decentralization since the project launched in 2015. Asset platform Synthetix similarly announced its transition to a network of multiple decentralized autonomous organizations (DAOs) Monday.


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