Strategic $20M Token Buyback to Capitalize on Undervaluation
Summary
This proposal recommends an immediate $20 million buyback of $AAVE tokens due to the protocol’s undervaluation at a price-to-sales (P/S) ratio of approximately 20. The AAVE treasury holds more cash than required for its growth investments, ensuring the buyback will not hinder the protocol’s ability to grow. The goal is to capitalize on the current low token price, reduce circulating supply, and enhance long-term value for AAVE token holders while maintaining sufficient reserves for operational stability and strategic initiatives.
Motivation
AAVE is a leading decentralized finance (DeFi) protocol with significant growth potential, driven by its dominance in lending/borrowing markets and emerging revenue streams like GHO and Horizon. The current P/S ratio of approximately 20 signals significant undervaluation, especially compared to mature financial institutions with lower growth potential (e.g., Morgan Stanley P/E 14.79, Bank of America P/E 13.78, Citigroup P/E 13.53, Wells Fargo P/E 13.84, U.S. Bancorp P/E 10.93). AAVE’s innovative position in DeFi and its ability to scale as the world moves “onchain” justify an immediate capital allocation to enhance token value.The protocol has already repurchased 102,000 $AAVE tokens, effectively reducing circulating supply by approximately $52 million annually at current prices. With $AAVE trading at a low price relative to its valuation and the treasury holding surplus cash beyond what is needed for growth investments, an immediate $20 million buyback is warranted to seize this opportunity and signal confidence in AAVE’s long-term potential without compromising its growth trajectory.
Proposal Details
Immediate $20M Token Buyback
Action: Allocate $20 million from the AAVE treasury to purchase $AAVE tokens as soon as possible.
Rationale: The current P/S ratio of 20 reflects a significantly undervalued token price relative to AAVE’s growth prospects, driven by its market-leading lending/borrowing business and emerging initiatives like GHO and Horizon. The treasury’s surplus cash ensures this buyback will not hinder funding for growth investments.
Execution: Execute the $20 million buyback via on-chain transactions, potentially using decentralized exchanges or over-the-counter trades to minimize market impact.
Impact: Reduces circulating supply, further lowering the effective P/S ratio, increasing token scarcity, and signaling confidence in AAVE’s long-term value to the market.
Growth Drivers and Competitive Advantage
GHO and Horizon: Emerging revenue streams, particularly GHO, have the potential to surpass AAVE’s core lending/borrowing business in profitability. These initiatives leverage AAVE’s market dominance and first-mover advantage in DeFi lending.
Long-Term Outlook: As DeFi adoption grows, AAVE’s exponential growth potential far exceeds that of traditional financial institutions, justifying capital allocation to enhance token value.
Treasury Management: The AAVE treasury holds more cash than required for its growth investments, ensuring the $20 million buyback will not impede funding for operational stability or strategic initiatives like GHO and Horizon. This surplus supports the protocol’s resilience during market downturns while enabling continued innovation.
Risks and Mitigations
Risk: The $20 million buyback could be perceived as reducing treasury flexibility.
Mitigation: The treasury’s surplus cash, beyond what is needed for growth investments, ensures sufficient reserves post-buyback. A treasury audit will confirm this capacity.
Risk: Market volatility could impact buyback efficacy or token price.
Mitigation: Execute the $20 million buyback gradually via dollar-cost averaging and monitor market conditions to optimize timing.
Risk: The buyback may not immediately impact token price due to external market factors.
Mitigation: Communicate the buyback’s purpose to the community to reinforce long-term value creation and maintain transparency.
Implementation Steps
Treasury Audit: Verify the treasury’s liquid reserves to confirm surplus cash beyond growth investment needs, ensuring the $20 million buyback does not hinder AAVE’s growth.
Community Discussion: Engage the AAVE community on governance forums (e.g., AAVE Governance Forum, Discord) to gather feedback on the $20 million buyback proposal.
Smart Contract Development: Develop or utilize existing smart contracts to execute the $20 million buyback efficiently.
Snapshot Vote: Submit the proposal for a Snapshot vote to gauge community support.
Execution: Upon approval, initiate the $20 million buyback immediately.
Conclusion
AAVE’s current P/S ratio of 20 and low token price relative to its valuation present a compelling opportunity to execute an immediate $20 million buyback, reducing circulating supply and enhancing long-term value. With the treasury holding more cash than required for growth investments, this buyback will not hinder AAVE’s ability to fund strategic initiatives like GHO and Horizon. The proposal positions AAVE to capitalize on its competitive advantages in DeFi, ensuring sustained value creation for the protocol and its community.
Call to Action
The proposer requests community feedback on this draft, particularly regarding the $20 million buyback and confirmation of treasury surplus. If supported, the proposal will proceed to a Snapshot vote for implementation.
I endorse this $20M token buyback proposal, as it’s a strategic move to seize AAVE’s clear undervaluation at a P/S ratio of 20, boosting long-term value for token holders while reinforcing confidence in the protocol’s robust growth trajectory. The treasury’s ample surplus ensures this won’t compromise initiatives like GHO and Horizon.
To maximize impact and efficiency, I recommend leveraging AAVE’s existing buyback mechanism but scaling up the tokens purchased per transaction up to a pre-determined price point. This approach minimizes costs, reduces market disruption, and amplifies the buyback’s effectiveness, making it a smarter path to achieve the same compelling objectives.
Also kudos on starting a much needed conversation @axieaur
I think this discussion is worth having although the details should be further looked at. My main question is should AAVE buybacks time the market? A one-time large buyback at a favorable price for the DAO could be worth it. It signals strengths. But the market and macro has uncertainties. We should be more careful initiating large buybacks. I do like the programmed auto buybacks. The only concern I have for the buyback program for the past 6 months is that we spent quite a lot buying the top (i.e. around 300s) that is increasing the avg buyback prices.
A starting point might be introducing dynamics into the current buyback program. E.g. buyback more when market price is below the avg acquisition price, without hurting growth and security initiatives.
I think quantitative metrics based on fundamental demand and revenue data does not meet the definition of timing the market. This idea is more in line with buying back shares of our company because we understand how undervalued it is and there is a unique opportunity in terms of low price in a favorable environment before us (especially policy and government shifts). we see that aave is worth far more, and holding shares of an undervalued asset will serve the DAO far greater than holding this subsection of cash if we have runway and cashflow positivity for any growth initiatives we hope to achieve in addition to our operational expenses. our cash stockade will replenish and in hindsight, I believe this calculated risk will prove to have been worth it.
A starting point might be introducing dynamics into the current buyback program. E.g. buyback more when market price is below the avg acquisition price, without hurting growth and security initiatives.
My next proposal aims to introduce programmatic increases in buy amounts when the AAVE is below a price to sales ratio of 20. On the other end of the spectrum.. when above 40 P/S, increase rewards to stakers/holders (or raise cash if required).
The Aave DAO has always been conservative with its Cash reserves.
Can we afford this? Yes, should we do it? I think not.
Better to spend this money on growth and the highly strategic Distribution deal we’re currently securing for the DAO (Binance, Kraken, Okx, Rabby, Metamask, and so on)
That being said, I share the opinion that the market likely underprices AAVE currently.
I’m in favor (as stated in the recent State of the Union post)
Enshine Buybacks, to give long-term confidence about Aave DAO’s willingness and capability to do buybacks.
Introduce the ability for AFC to increase/decrease the Buyback rate given market conditions to improve program efficiency while keeping budget in control.
We will work on a proposal and publish on the forum soon.
thanks Marc, appreciate the response/consideration. i totally understand where you’re coming from and appreciate the conservative approach with the cash in the treasury/understand the growth of the company is the most important thing.
I like the idea of AFC being able to modify buybacks given market conditions. Decisions like this are time sensitive and situational, so it would be great to be able to act quickly and decisively when opportunities like those present themselves.
Thanks for sharing your thoughts. While we agree that Aave remains fundamentally undervalued, we believe that a $20M buyback in one go would be excessive at this stage. As Marc rightly mentioned, we’re nearing the end of the initial 26-week buyback program, and we’ll soon return to the forum to present the next phase of our plans.
The Aave Treasury is indeed in a strong position, but treasury management must remain balanced and prudent. We’re actively funding a number of key initiatives, including service provider operations, incentive programs, and strategic distribution partnerships with major industry players. These initiatives are also investments in long-term growth, ultimately driving value back to the AAVE token.
We agree that adjusting the buyback weighting if the token price declines further could be beneficial, but such decisions need to be made within a structured and sustainable framework.
Reaching the 100K AAVE milestone was an important achievement, and we look forward to continuing to build on that foundation responsibly.
I’m always a fan of improving tokenomics but then token holder just like you need also to suggest actual improvements that could be voted on.
Just saying they need to be improved doesn’t help.
This isn’t just a SP job, their main job is to keep the protocol healthy and growing in the first place.
When the last tokenomics update launched the 30% GHO discount was taken away and promised to be replaced by anti-gho. This has up until this point not happened and is one less reason to hold Aave to reduce borrowing costs. When will this be addressed?
Thanks, I was going to mention that. I thought the AAVEnomics improvements were still ongoing. As an AAVE holder, I expect some kind of benefit from using the platform—whether that’s a fee premium or some revenue share. What Sky has done recently is something we should analyze and potentially replicate. I can stake SKY and earn USDS (14% APY) while simultaneously borrowing USDS (6% APY) I wish we could have something similar for AAVE, where I can stake AAVE and also access borrowing. Right now it’s a separate module—you can either choose to supply AAVE and borrow (without earning anything from supplying/holding) or stake AAVE and earn something but forfeit borrowing capabilities. I wish we could combine these mechanisms and elevate AAVE’s utility as a token. Right now, holding AAVE isn’t particularly appealing, tbh. CC @EzR3aL
Reading @PatrickB comment on Anti-GHO got me broadly thinking on Staked Avve in general & I’d like to propose a couple of suggestions which appear to have been touched on in various other governance discussions.
Eliminate Redemption Cooldown for Staked AAVE
Reduce the current 10-day cooldown period for redeeming staked AAVE (stkAAVE) to zero, allowing instant liquidity. Forum threads on Safety Module upgrades (e.g., v1.5 technical reviews) emphasize improving staking flexibility without compromising protocol security. This would make stkAAVE more attractive while maintaining slashing protections.
Enable Staked AAVE as Collateral
If/When the redemption period for stkAAVE is zero to be used as collateral in Aave markets, with a conservative loan-to-value (LTV) ratio of around 70% to mitigate risks as suggested in early forum ideas for accommodating staking hooks. This enhances utility for leveraging strategies without exposing the protocol to excessive volatility.
Reinstate and Expand GHO Borrow Discount for StkAAVE Holders
Temporarily restore the 30% discount on GHO borrow rates for stkAAVE holders, as originally introduced with GHO, until the full rollout of Anti-GHO. GHO discounts heighten adoption, amplifying protocol revenue—we’ve all heard how profitable borrowing GHO is for The Dao!
Thanks to service providers The DAO is in a very healthy financial position with current revenue streams, robust safety & umbrella module coverage and appears to be able to implement this with no detrimental impact on funding protocol growth, surely this represents a low-risk “quick win” ?
I appreciate there maybe ongoing “behind the scenes activity” related to all of the above but thought I’d try to add something constructive to the discussion.
They are ongoing, but Rome wasn’t built in a day.
Everything takes time to be developed and implemented.
In parallel the DAO is working on heavy growth with Plasma, Ink, etc.
And talking about SKY. You need to understand that these rates (which started at 40%) are heavily subsidized. That means SKY is paying insane amounts of money to keep people in the system. See here for more information https://x.com/ImperiumPaper/status/1979615661455556937
Its a risky system they implemented here for someone who wants to stake and borrow.
@MrKris the cooldown will go down further over time most likely.
Regarding stkAAVE as collateral see my message above. The risk is pretty high in my opinion at least.
I would argue that the GHO discount wasn’t that successful. At least I do not know someone who used it. Anti GHO is a better approach in my opinion. And in the future it could give someone extra rewards if for example someone has a “staking streak of 100 days” which results in extra rewards straight from generated revenue, best case in vested Aave token and or GHO.
But first we need to grow more and bigger. Get at least 80% marketshare across all chains in lending and increase revenue.
Both Aavenomics and state of the union are an ongoing process, it’s paradigm shift changes that need to be implemented both in a sustainable way (no one wants us to be forced to rollback to worse tokenomics due to unsustainability) and proper implementation.
At current revenue Anti-GHO yield would be too low to be attractive, current focus is to spend our ressources on growth and distribution deals we are currently winning.
AAVE is already the asset with the best tokenomics of our vertical, our protocol with the best economy, we will keep improving but at a sustainable pace.
How are you envisioning this tokenomics in the future? I wouldn’t consider AAVE to have good tokenomics. In terms of yield, it offers an opportunity on the old version of the safety module with little yield and high risk and no borrowing capacity. Aave’s product is awesome, but the tokenomics I wouldn’t call “the best” because it’s not—otherwise the market wouldn’t be pricing it at the same level as many years ago.
Look at what HYPE has done with their tokenomics—now that’s a superior model. They’ve managed to create real utility and value accrual for token holders that’s actually reflected in price action. There are not real incentives for holding AAVE, I was hyped with the GHO discount…
I do agree with the sentiment above though that stkAAVE should get a chance to become collateral. With the safety module revamp and the introduction of umbrella, stkAAVE presents not much higher risk compared to the vanilla AAVE (just the additional smart contract risk of the stacking module). This could present challenges though around stkAAVE yield reduction due to looping and/or liquidation concerns, so any change in that direction needs to be addressed carefully. V4 may facilitate things on that regard with additional capabilities on risk segregation and yield diversification.