AAVE Token & Governance

The AAVE token is the cornerstone of Aave protocol governance, enabling holders to participate in shaping the future of decentralized finance. Through Aave governance, the community controls protocol parameters, treasury management, and strategic decisions that guide Aave's development.

🗳️ Aave DAO Governance
Aave operates as a fully decentralized autonomous organization (DAO). All major protocol decisions are made through on-chain Aave governance votes, ensuring transparent and community-driven development of the Aave ecosystem.

What is the AAVE Token?

The AAVE token is the native governance and utility token of the Aave protocol. Originally launched as LEND in 2017, the token was migrated to AAVE in 2020 at a 100:1 ratio, establishing the current Aave governance framework. Today, AAVE represents voting power in Aave governance and serves as the backbone of protocol security through staking.

As a governance token, AAVE gives holders the right to propose and vote on changes to the Aave protocol. This includes modifications to risk parameters, the addition of new assets to Aave markets, treasury allocations, and protocol upgrades. Every significant change to Aave must pass through the governance process.

The AAVE token has a maximum supply of 16 million tokens, with distribution across community members, the Aave ecosystem reserve, and the founding team. This fixed supply ensures scarcity while the Aave governance can vote on token emission strategies for ecosystem incentives.

AAVE Token Utility

The AAVE token provides multiple utilities within the Aave ecosystem, making it central to protocol operations and governance:

🗳️
Governance Voting
AAVE holders can vote on Aave Improvement Proposals (AIPs). Each AAVE token equals one vote in Aave governance decisions, from parameter changes to protocol upgrades.
🛡️
Safety Module Staking
Stake AAVE in the Safety Module to earn rewards while protecting the Aave protocol. Staked AAVE (stkAAVE) acts as a backstop against potential shortfall events in Aave markets.
💰
Protocol Revenue
A portion of Aave protocol fees flows to the Aave treasury and stkAAVE holders. This aligns AAVE staker incentives with protocol success and sustainable growth.
🎯
GHO Discount
stkAAVE holders receive discounted borrow rates on GHO, Aave's native stablecoin. This creates additional utility for AAVE stakers within the Aave ecosystem.

Aave Governance Process

Aave governance follows a structured process ensuring community input and transparent decision-making. Every proposal that affects the Aave protocol must pass through these stages:

1. Proposal Creation

Community members draft Aave Improvement Proposals (AIPs) outlining changes to the Aave protocol. Proposals are first shared in Aave governance forums for feedback.

2. Community Discussion

The Aave community debates proposals in the governance forum. This phase refines ideas and builds consensus before formal Aave voting begins.

3. Snapshot Vote

Qualified proposals undergo an off-chain Aave Snapshot vote to gauge community sentiment. This helps filter proposals before on-chain Aave governance voting.

4. On-Chain Vote

Approved proposals proceed to on-chain Aave governance voting. AAVE and stkAAVE holders vote using their tokens to accept or reject the proposal.

5. Timelock Period

Passed proposals enter an Aave timelock period before execution. This safety measure allows time for review and emergency cancellation if needed.

6. Implementation

After the timelock, approved changes are executed on the Aave protocol. The Aave community can verify all changes through public blockchain records.

Aave Improvement Proposals (AIPs)

Aave Improvement Proposals are the formal mechanism for suggesting changes to the Aave protocol. AIPs cover a wide range of topics affecting how Aave operates:

AIP Category Description Examples
Risk Parameters Changes to Aave market parameters LTV ratios, liquidation thresholds, reserve factors
Asset Listings Adding new assets to Aave markets New token listings, LST additions, stablecoin integrations
Protocol Upgrades Technical improvements to Aave Smart contract updates, new features, security patches
Treasury Management Aave treasury allocations Grants, incentive programs, ecosystem funding
Governance Updates Changes to Aave governance itself Voting parameters, delegation rules, quorum thresholds

Every AIP includes detailed specifications, risk analysis, and implementation plans. The Aave governance framework ensures thorough review of all proposals before they can affect the Aave protocol.

Safety Module (stkAAVE)

The Aave Safety Module is a critical component of Aave protocol security. By staking AAVE tokens, users contribute to protecting the Aave ecosystem while earning rewards:

🛡️ How the Aave Safety Module Works
When you stake AAVE, you receive stkAAVE tokens. These staked tokens serve as a backstop: in case of a shortfall event in Aave markets, up to 30% of staked AAVE may be slashed to cover protocol losses. In return, Aave stakers earn Safety Incentives.

Aave Staking Benefits

  • Staking Rewards: Earn AAVE token rewards for securing the Aave protocol
  • GHO Discount: stkAAVE holders receive discounted borrow rates on Aave's GHO stablecoin
  • Governance Power: stkAAVE maintains full Aave voting rights
  • Protocol Alignment: Staking aligns your incentives with Aave protocol health

Aave Staking Mechanics

The Aave Safety Module includes a cooldown period to ensure stability. When unstaking, users must wait through a 20-day cooldown followed by a 2-day unstaking window. This Aave mechanism prevents sudden liquidity withdrawals that could weaken protocol security.

How to Participate in Aave Governance

Participating in Aave governance is open to all AAVE token holders. Here's how you can shape the future of Aave:

  1. Acquire AAVE Tokens: Purchase AAVE on exchanges or earn through Aave protocol participation
  2. Join the Aave Forum: Engage with the Aave community in governance discussions at governance.aave.com
  3. Review Aave Proposals: Read and analyze AIPs to understand their impact on Aave
  4. Vote on Aave Proposals: Cast your votes using AAVE or stkAAVE tokens
  5. Stake in the Aave Safety Module: Earn rewards while securing Aave and boosting your governance participation
  6. Create Aave Proposals: Draft your own AIPs to improve the Aave protocol

Voting Power and Delegation

Aave governance supports flexible voting mechanisms to maximize participation:

⚡
Direct Aave Voting
Vote directly on Aave proposals using your AAVE or stkAAVE balance. Your voting power equals the number of tokens you hold at the snapshot block.
🤝
Aave Delegation
Delegate your Aave voting power to trusted community members or protocols. Delegation lets you participate in Aave governance even when you can't vote directly.

Aave Delegation Options

Aave governance allows two types of delegation to accommodate different preferences:

  • Voting Power Delegation: Delegate your Aave voting rights while retaining proposal creation power
  • Proposition Power Delegation: Delegate the ability to create Aave proposals on your behalf
  • Full Aave Delegation: Delegate both voting and proposition powers to a single delegate

Delegation in Aave governance is gas-free through Snapshot voting, making it accessible for all AAVE holders. You can change your Aave delegation at any time, and delegated tokens remain in your wallet – you only delegate the governance power, not the tokens themselves.

Aave Governance Statistics

400+
Aave AIPs Passed
16M
Max AAVE Supply
$500M+
Aave Treasury
3M+
Staked AAVE

Aave Governance Best Practices

Make the most of your Aave governance participation with these recommendations:

Stay Informed

Follow Aave governance forums, Discord, and Twitter to stay updated on upcoming Aave proposals and community discussions.

Understand Risk

Review risk assessments for Aave proposals. Changes to Aave parameters can significantly impact protocol security and user positions.

Choose Delegates Wisely

If delegating your Aave voting power, research delegates' voting history and alignment with your Aave governance preferences.

Participate Consistently

Regular Aave voting participation strengthens governance legitimacy. Set reminders for Aave voting periods.