Aave DAO is evaluating a proposal that would modify the protocol’s economic structure.

The plan, developed by Aave Chan Initiative (ACI), introduces changes in treasury management, revenue distribution, and the AAVE token buyback mechanism.

Aave DAO is assessing a proposal that could reshape the protocol's economic structure, introducing changes in treasury management, revenue distribution, and the AAVE token buyback mechanism.

The proposal, named "Aave Chan Initiative: A Risky Proposal to Save Aave (and crypto)!" and developed by Acio, aims to adjust the protocol's liquidity incentives and optimize resource allocation. It proposes the creation of the Aave Finance Committee (AFC), which would manage the protocol's reserves and coordinate financial strategies.

AFC would be responsible for executing a buyback program for AAVE, with a budget of $1 billion per week for six months. The initiative would begin with the goal of reducing the number of tokens allocated to liquidity incentives, progressively replacing them with direct market purchases.

The incentive system would also be modified to make resource usage more efficient. Currently, Aave allocates $27 million annually to these incentives. The proposal suggests a model that combines staking and active management, which would lower these costs without affecting the protocol's competitiveness.

This integration would create a new governance token that can be staked to earn revenue from the protocol and a modified economic system, adjusting the Aave Bank interest rates and catering to shifting market conditions.

Umbrella and Anti-GHO

Another key change is the implementation of the "Umbrella" security module, designed to mitigate risks associated with bad debt. This module would provide an efficient and scalable solution for handling unforeseen events and anomalies within the Aave ecosystem.

Additionally, the "Anti-GHO" mechanism would replace the current discount system for the GHO stablecoin. Instead of offering rate reductions, this mechanism would distribute part of the revenue generated by GHO among AAVE stakers. This system aims to incentivize the use and stability of GHO, ultimately benefiting the entire Aave ecosystem.

The plan also includes the definitive removal of the LEND-to-AAVE migration contract. This process, initiated in 2020, left 320,000 unclaimed tokens, which at current prices equates to approximately $65 million.

With the contract's removal, these funds would be reallocated to the ecosystem reserve, further bolstering the protocol's financial stability and providing additional resources for future initiatives.

The proposal is currently in the community consultation phase. If it gains sufficient support, it will move to a preliminary vote on Snapshot and then to a formal on-chain governance decision.

The market initially reacted positively to the announcement, with AAVE rising by over 6% on Wednesday. However, given the ongoing correction phase, CoinMarketCap shows that the AAVE token has dropped 0.7% in the last 24 hours.