Aave has become the top DeFi protocol, with $1.5 billion locked up in its smart contracts. It has also become the first DeFi project to reach a market cap of $1 billion and has been granted an electronic money institution licence by the UK’s Financial Conduct Authority.
Aave recently launched its Aavenomics proposal to reward liquidity providers and AAVE holders who participate in risky positions and maintain protocol security.Aave CEO Stani Kulechov told Cointelegraph on the phone that the feature allowing Aave token holders to take a stake in the security model is said to be designed to attract more Institutional investors and the general public deposit into Aave.
The goal of Aavenomics is to create a Shelling Point where the growth, sustainability and security of the protocol takes precedence over the goals of individual stakeholders, Kulechov explained.
“One of the features of the AAVE token allows the holder to take a stake in a security model to provide security for these depositors”.
The security model is a betting mechanism to secure AAVE tokens as insurance against Shortfall events. Financial incentives will be focused on those with the riskiest positions, the founders said.
In order to make AAVE protocol governance more decentralized, the project will migrate the original LEND tokens to AAVE. It will propose 100 LENDs per 1 AAVE vote through a vote of the Genesis governance, which is said to accept or not accept the proposed rates in the coming weeks.
The total supply of AAVE will be 16 million tokens.13 million AAVE tokens will be redeemed by LEND. This means that the supply of AAVE tokens will be less than LEND. According to Kulechov, the reason is more of a technical upgrade than anything else. A new mint AAVE feature has been added for “protocol security”, he explains. He explains.
“If there’s a smart contract bug, or there’s a failed clearing or some sort of event where there’s a deficit going into the protocol, casting more Aave is said to save the protocol deficit.”
A reserve of 3 million Aave tokens has been set aside to incentivise future protocol developers. He said.
“If someone is building some interesting features for the protocol, they can use this reserve to support such actions.”
Kulechov stressed that interoperability of protocols in Ethereum’s DeFi ecosystem is critical to achieving the current DeFi market assessment. He also stated.
“The key factor for significant growth in the DeFi space depends on an infrastructure where developers can use one or two baseline protocols and build other protocols on top of them.”
He said that the projects being built are experimental in nature and that DeFi provides a playground for developers and users.According to Kulechov, the ultimate goal of DeFi is to eliminate the inefficiencies of traditional finance and provide a permissionless infrastructure to access the financial system without barriers.
Kulechov noted that there are currently about 30 different access points for users to access the Aave protocol. Cryptographic wallets allow people to take advantage of the protocol and deposit stablecoins and other funds in order to earn interest.
The permissionless system is also a key factor in the mass adoption of cryptocurrencies. The founders explain that being permissionless means that anyone and everyone can build functionality in DeFi.
“Any developer from a different part of the world can build a new financial or non-financial application using Aave anytime, anywhere, because our protocol is accessible to developers, which is an important adoption factor.”
According to Kulechov, the DeFi protocol will run execution of smart contracts on its own without permission. Future regulation will focus on the process of creating smart contracts and ensuring that they are secure enough to be executed on the main network.
“DeFi is like an ocean; the ocean is not regulated, but ports such as smart contracts that lead to the ocean should be regulated.”