Aave Proposal Targets 54 Reserves, Adds $3.5 Million a Year to DAO Revenue
Key Facts
TokenLogic published a proposal in the Aave governance forum on November 12 to adjust the reserve factor on 54 reserves across 12 Aave V3 markets and the Ethereum V2 market. The team estimated that the changes would add about $3.5 million a year to DAO revenue and raise the blended reserve factor from 12.0% to 12.7%. The estimate was based on balances and interest rates recorded on November 9, so it represents an annualized calculation using those data. The reserve factor determines how interest paid by borrowers is divided between liquidity suppliers and the DAO. The proposal said that adjusting the factor would not change the interest rate paid by borrowers, but would reduce supplier yields in affected markets.
In the Avalanche market, TokenLogic proposes raising the reserve factor for USDC from 10% to 25%. The proposal estimates that this would reduce the supply yield by 61 basis points, while adding $416,862 a year to DAO revenue from the asset. For USDt, it proposes raising the factor from 10% to 25%, reducing the estimated supply yield by 78 basis points and adding $193,282 a year to revenue. The proposed increase is relatively larger for DAI.e, with the reserve factor rising from 25% to 90%. The proposal estimates a 173-basis-point decline in DAI.e’s supply yield and $53,383 in additional annual revenue.
In Ethereum Core, the team proposes raising the reserve factor for DAI from 25% to 30%. The proposal says the market has about $127 million in supply and about $100 million in borrowing, with utilization at 78.5%. The estimate shows the supply yield falling by 17 basis points, while annual DAO revenue rises by $217,486. These figures show that the proposal specifies the impact for each market and asset individually, rather than applying a uniform reduction to supplier yields. Yield and revenue estimates vary according to the proposed reserve factor changes and the balances used in the calculation.
The proposal also covers assets with outstanding borrowing in the Ethereum V2 market. It proposes raising reserve factors for these assets to 99.99%, compared with 85% for most of them and 90% for WBTC. TokenLogic estimated that these changes would add $152,574 a year to DAO revenue. The proposal says Ethereum V2 reserves are frozen, so suppliers cannot add liquidity and new positions cannot be opened. It also says that reducing supply yields could prompt remaining suppliers to withdraw, raising utilization and borrowing rates and encouraging the closure of existing positions.
On the Plasma network, TokenLogic proposes raising the USDT0 reserve factor from 5% to 7.5%. It estimates that this would reduce the supply yield by 16 basis points and add $1,036,635 a year to DAO revenue. The estimate is based on an outstanding borrowing balance of $632,468,070 in data from November 9. But adding this change to an AIP proposal awaits completion of conditions with the Plasma team. TokenLogic says supply yields on assets with very low utilization approach 0.00%, and that raising the reserve factor in those cases costs suppliers no more than one or two basis points.
The proposal places the adjustments within a broader effort to reduce reserves and low-activity markets in Aave V3, freeze Aave V2, focus Ethereum Core on liquid, established collateral, and move higher-risk assets to V4. In a separate proposal published on November 10, LlamaRisk said the assets covered on Ethereum Core held $1.33 billion in assets backing $1.03 billion in debt, based on data from November 9. LlamaRisk proposed initially freezing the relevant reserves, keeping existing positions unchanged and working with asset issuers and large borrowers on an orderly transition. It said increasing the borrow rate would be considered only as a last resort if exposure did not decline, and that each step would be announced in advance in the forum. TokenLogic disclosed in its reserve factor proposal that it is an active service provider to Aave DAO.
The AAVE token closed at $114.07 on November 12, according to EL7 daily data. The proposal did not cite that closing price as an outcome of the proposed changes. TokenLogic set out the next steps as gathering community feedback and then advancing the proposal to the AIP stage. The USDT0 change on Plasma remains contingent on completing conditions with the network team before it can be included at that stage. The proposal’s revenue and supply yield estimates remain tied to the balances and interest rates used in the calculation.