Fee Distribution Shake-up in DeFi: Aave Contemplates Changes

Aave, a decentralized lending platform, is considering implementing a ‘fee switch’ to distribute fees to token holders. The founder of Aave Chan Initiative, Marc Zeller, discussed this proposal on the X social platform. Zeller mentioned that Aave’s current annual net profits amount to $60 million, which covers five years of operational costs. Aave is a cryptocurrency lending platform that operates on various blockchain networks. It enables borrowers to take out loans using one cryptocurrency while using another as collateral. Aave is controlled by Aave token holders who form the AaveDAO.

In a previous post on X social, Zeller hinted at the possibility of implementing fees for Aave stakers. He suggested distributing fees to stakers through a new iteration of the safety module. A ‘fee switch’ refers to a feature within a system or platform that allows for the activation or deactivation of specific fees. In the case of decentralized finance protocols like Aave, a fee switch could enable the distribution of fees collected in transactions or other activities to token holders.

Aave DAO recently approved changes to staking fees for its stablecoin GHO to maintain its pegged value. Following this decision, Aave DAO may proceed with fee activation, similar to Frax Finance, which recently embraced a proposal to reintroduce its fee switch. AaveDAO discussed potential collateral restrictions for Dai (DAI) on April 5. Chaos Labs, a risk management advisory, presented a proposal suggesting a 12% reduction in DAI loan-to-value ratios (LTV), while Zeller advocated for a 75% reduction. Previously, Aave proposed setting DAI’s LTV to 0% across all deployments and recommended removing sDAI incentives from the Merit program in future rounds.

In addition to Aave, decentralized exchange Uniswap is preparing to introduce its own fee switch proposal by mid-April. The proposal is currently in its final stages of preparation.