With the launch of a liquidity mining program on Monday, Aave could be on the verge of becoming the dominant DeFi (decentralized finance) protocol.
Aave Improvement Proposal (AIP) 16 entered a quorum today, meaning that starting Monday 4/26 liquidity providers and borrowers in Aave’s USDC, DAI, USDT, GUSD, ETH and WBTC pools in addition to their standard stAAVE – Premiums receive interest yield.
According to AIP 16, providers and borrowers in these pools will split 2,200 stAAVE tokens per day from the protocol’s current 2.9 million AAVE ecosystem reserve, currently valued at nearly $ 1 billion.
The proposal made by Anjan Vinod, an investor in Aave investor Parafi Capital, states that the aim of the program is to “advance lending and lending activities across markets” and improve the decentralization of the governance of the protocol by adding governance -Tokens can be distributed to more users.
The move is something of a novelty for Aave. The lending platform has consistently been ranked among the largest DeFi protocols, although there is no liquidity mining program like many of its competitors. For their respective apps, Compound is currently the top credit protocol with a total value of over $ 15.4 billion (TVL) in all markets, while Aave is in the Polygon, Ethereum v1, Ethereum v2, and AMM LP markets. Token is worth $ 6.8 billion.
Aani co-founder Stani Kulechov told Cointelegraph that he expects the additional incentives to significantly bolster the protocol’s TVL.
“The proposal calls for most of the rewards for stablecoin, which means the TVL will increase significantly,” he said.
As the governance proposal notes, the lack of a liquidity mining program has made Aave a competitive disadvantage in the past. For example, at the time of the money market writing, Compound offers a yield of 3.31% for Stablecoin USDC and 2% for COMP Governance Token for a total return of 5.51%. Aave’s market also currently offers an identical net interest yield of 5.51%.
A recent tweet from Aave developer Emilio Frangella suggests that the new program will increase returns by orders of magnitude and, in particular, provide returns to borrowers – returns that, at current interest rates, significantly outperform APR borrowers who owe their loans would.
Here is the estimate if market conditions stay the same pic.twitter.com/3cLisnArPy
– Emilio Frangella (@ The3D_) April 24, 2021
While the current program is expected to end on July 15, 2021, the door is open for a form of liquidity reduction that will continue for the foreseeable future for the record. According to Vinod, “this program is being proposed as a beta to further explore how the inclusion of cash-drain rewards will benefit the Aave ecosystem,” and at a distribution rate of 2,200 / day, the program would deplete only 5% of the ecosystem reserve token per Year.
When Liquidity Mining was first proposed on governance forums, it only received 60% support from the community. Kulechov believes the turnaround is due in part to the community being successful in running other liquidity mining programs.
“The Aave community has previously spoken out for and against views on this issue, largely because the Aave Protocol has successfully achieved organic growth. Now that the effects of the liquidity mining network have been proven, there is an opportunity to experiment in Aave and this could be the reason for the turnaround. “