Aave Restructures: L2 Closures and $100M GHO Push Spark Debate

Aave DAO is gearing up for a big overhaul by shutting down over 50% of underperforming L2 situations. It can be restructuring its governance framework and deploying over $100 million to spice up GHO.

This could possibly be a pivotal second that propels Aave again to the forefront of on-chain lending or sparks unprecedented controversy inside the DeFi group.

ACI Proposes Shutting Down 50% of L2s

The “State of the Union” report by the Aave Chan Initiative (ACI) paints a candid image. After a turbulent interval within the DeFi market and inner challenges, Aave (AAVE) now leads in key metrics: TVL, income, market share, and borrowing quantity. Aave’s annual income of $130 million surpasses the mixed money reserves of its opponents. Tokenomics enhancements and the AAVE token buyback program have additionally contributed to the ecosystem’s development.

However, the ACI’s report additionally highlights a number of ache factors.

First, relating to the Layer-2 (L2) technique. While Aave’s L2 technique was as soon as a key driver of success, it’s not match for goal. Over half of Aave’s situations on L2s and alt-L1s aren’t economically viable. Based on year-to-date information, over 86.6% of Aave’s income comes from the mainnet, indicating that every thing else is a facet quest.

On this foundation, ACI proposes closing underperforming networks. The DAO ought to spend money on key networks with important differentiators.

Second, ACI is pushing for an entire overhaul of the “pleasant fork” framework, as most have been unimpressive relating to TVL and income. In some instances, attackers have exploited them to Aave’s detriment, as seen with Spark.

“The pleasant fork mannequin had a great intention however unhealthy execution the place the DAO was too pleasant in direction of these forks, permitting the DAO solely little upside,” the report states.

Third, the occasion mannequin, as soon as a wise innovation in early variations, has turn out to be out of date in newer variations of the Aave V3 codebase resulting from its high prices. Therefore, ACI proposes that no additional growth or development efforts be allotted to situations sooner or later, apart from the Prime occasion.

Reasonable, however Risky Decision

ACI’s reasoning is logical within the present context. On-chain lending is a low-margin enterprise. Fragmented TVL throughout a number of chains incurs high labor and incentive prices, whereas most income continues to be generated on the mainnet. Streamlining operations will improve enterprise efficiency by focusing assets on networks with particular benefits. This strategy may even successfully cut back working prices.

However, this “shutdown” choice carries political and group dangers. L2 ecosystems/companions might object, customers on these chains might go away, and TVL may briefly decline. Thus, this wants cautious consideration within the implementation roadmap.

A very noteworthy course within the report is ACI’s concentrate on inserting GHO stablecoin on the core of its development technique. ACI prioritizes GHO’s growth by sustaining the AAVE buyback program. This program will contain weekly purchases of roughly $500,000 to $1 million for the following 18 months. ACI will deploy over $100M in reserves for partnership packages and activate a GHO credit score line collateralized by BTC/ETH/AAVE.

The purpose is obvious: rework GHO right into a driver of upper revenue margins for the DAO. This shift will transfer from a low-margin lending mannequin to a higher-margin mannequin by means of a stablecoin CDP. If executed successfully, this might considerably increase the DAO’s income and assist AAVE’s valuation.

Aave is well-positioned with a stable monetary basis and dominance in on-chain lending. GHO’s immense potential additional locations it at a historic alternative to form the way forward for decentralized finance. However, short-term dangers of TVL discount or group backlash should still come up.

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