I am opening this as a separate discussion because the AAVE buyback conversation seems to have evolved beyond the original question of whether the DAO should buy back AAVE.
This is not meant as criticism of Aave as a protocol. Aave is one of the strongest protocols in DeFi, with real product-market fit, deep liquidity, serious risk management, a mature DAO, and long-term strategic relevance.
The narrower question I want to raise is this:
What should protocol surplus mean for AAVE holders?
More specifically, how should Aave distinguish between treasury management, protocol growth, risk reserves, staking/security incentives, buybacks, and permanent tokenholder value accrual?
This distinction matters because the word “buyback” can mean very different things depending on what happens after the tokens are bought.
A buyback into the DAO treasury is not the same as buyback-and-burn.
A buyback used for staking or security rewards is not the same as direct passive holder accrual.
A buyback where tokens can later be redistributed, granted, used as incentives, or sold is not the same as permanent supply reduction.
That does not mean buybacks are bad. It means the DAO should define exactly what role buybacks are supposed to play in AAVE tokenomics.
The Core Issue
The buyback program was an important step forward for Aavenomics. It showed that protocol revenue could be used to create demand for AAVE and align the DAO more closely with tokenholders.
However, recent discussions around buyback execution, budget adjustments, the rsETH-related pause, and calls to restart buybacks suggest a deeper issue:
AAVE does not yet appear to have a formal surplus allocation framework.
Right now, several separate questions often get mixed together:
- Should the DAO buy AAVE?
- How should buybacks be executed?
- Should buybacks pause during risk events?
- Should bought-back AAVE remain in treasury?
- Should bought-back AAVE be distributed to stakers or security providers?
- Should any portion be burned or permanently locked?
- Should surplus revenue be reinvested into growth instead?
- What is the actual value-accrual mechanism for passive AAVE holders?
These are related questions, but they are not the same question.
Buyback Execution vs Holder Value Accrual
There has already been useful discussion about buyback execution, including mechanisms such as TWAP or TWAMM to improve execution efficiency, reduce slippage, and reduce operational overhead.
That is important, but execution is only one layer.
Execution answers:
How should the DAO buy AAVE efficiently?
It does not answer:
What happens to the AAVE after it is bought?
That second question is the core of tokenholder value accrual.
If bought-back AAVE simply sits in the DAO treasury and can later be redistributed, granted to contributors, used for incentives, or sold, then the mechanism is closer to treasury accumulation than permanent holder value accrual.
Treasury accumulation can still be useful. It gives the DAO flexibility. It may help fund growth, strengthen reserves, incentivize useful behavior, or support security mechanisms.
But it should not be treated as identical to permanent value accrual for passive holders.
Why Buybacks Alone May Not Be Enough
From a passive AAVE holder’s perspective, buybacks into treasury create some benefits:
- protocol-funded demand for AAVE;
- a signal that the DAO values its own token;
- potential strategic accumulation;
- flexibility for future incentives or security programs.
But they do not necessarily create:
- permanent supply reduction;
- direct fee sharing;
- dividend-like distributions;
- automatic increase in ownership percentage;
- a hard-coded claim on protocol surplus;
- certainty that bought-back tokens will not become future sell pressure.
This matters because the market may continue to discount AAVE if protocol revenue is visible but tokenholder value accrual remains unclear.
Aave can be a world-class protocol while AAVE still trades at a discount because holders are not sure how protocol success flows back to the token.
That is the problem this thread is trying to frame.
This Is Not a “Burn Everything” Argument
I am not arguing that Aave should burn 100% of bought-back AAVE.
That would be too simplistic and potentially harmful.
Aave is not a meme coin. It is a systemically important DeFi protocol. The DAO needs capital for risk management, incident response, treasury runway, service providers, protocol development, Umbrella and safety mechanisms, ecosystem growth, GHO, V4, Horizon, and future strategic opportunities.
The rsETH incident showed why balance sheet flexibility matters. During periods of uncertainty, preserving treasury capacity can be rational.
So the argument should not be:
Burn everything.
The stronger argument is:
When Aave generates genuine surplus after risk buffers, treasury runway, and growth needs are covered, some portion of that surplus should become permanent and measurable value accrual for AAVE holders.
Why Some Permanent Holder Accrual Still Matters
At the same time, 0% permanent holder accrual is also not ideal.
If all protocol surplus goes into treasury, service providers, incentives, or discretionary buybacks, passive AAVE holders may still be left with a weak value-accrual story.
AAVE holders take market risk. They absorb governance risk. They absorb token volatility. They are expected to support the protocol long term.
But if protocol revenue only accumulates in the DAO treasury and can be recycled back out later, holders may reasonably ask:
What exactly is the durable economic benefit of holding AAVE?
This is why the DAO should consider a formal framework that includes some form of permanent holder accrual.
That could be partial buyback-and-burn, hard-locking a portion of bought-back AAVE, long-duration escrow, staking/security rewards with clear economics, fee sharing where legally and structurally appropriate, or a combination of these tools.
Burn is only one tool. It is not the entire solution.
But it is the cleanest mechanism for passive holder accrual because it is irreversible, measurable, and easy to understand.
A Possible Surplus Allocation Framework
Instead of debating “buybacks vs burn” in isolation, Aave could define a broader surplus allocation framework.
Protocol surplus could be allocated across several buckets:
| Bucket | Purpose | Holder Impact |
|---|---|---|
| Risk and safety reserve | Protect against bad debt, market stress, oracle failures, bridge incidents, and other unexpected risks | Indirect but essential |
| Treasury runway | Fund contributors, audits, infrastructure, governance operations, and development | Indirect but important |
| Growth and strategic initiatives | Support V4, GHO, Horizon, integrations, institutional markets, and ecosystem expansion | Indirect, potentially high ROI |
| Staking / Umbrella / security incentives | Reward users who actively take protocol risk or support safety mechanisms | Direct for active risk-takers, not passive holders |
| Buyback-to-treasury | Allow the DAO to accumulate AAVE strategically | Useful, but not permanent holder accrual |
| Permanent holder accrual | Create irreversible and measurable benefit for AAVE holders | Direct and transparent |
The important point is not the exact percentages.
The important point is that Aave should clearly separate treasury accumulation from permanent holder value accrual.
A Conditional Model Could Avoid Both Extremes
Aave does not need to commit to a fixed burn percentage forever.
A more mature approach would be KPI-based.
If treasury runway is below a minimum threshold, there should be no burn and the DAO should prioritize reserves and runway.
If there is active bad debt, market stress, or a serious risk event, there should be no burn and the DAO should prioritize protocol protection.
If protocol revenue is weak or declining, the DAO should prioritize resilience and growth.
But if treasury runway is healthy, risk buffers are funded, and revenue exceeds operating and security needs, then a defined percentage of surplus could go toward permanent holder accrual.
This avoids both extremes:
- no reckless burn during risk periods;
- no endless treasury accumulation with unclear holder benefit.
Questions Worth Answering
I think the DAO, delegates, service providers, and long-term holders should clarify a few key points:
- What is Aave’s formal definition of AAVE tokenholder value accrual?
- Should buyback-to-treasury and permanent holder accrual be reported as separate categories?
- What exactly happens to bought-back AAVE today?
- Is bought-back AAVE intended to be held indefinitely, distributed, locked, used for incentives, granted to contributors, or potentially sold?
- If bought-back AAVE can be recycled later, should the market treat it as permanent value accrual?
- Should Aave introduce a rule that a percentage of bought-back AAVE is permanently burned or hard-locked when protocol health metrics are strong?
- Should permanent holder accrual only activate after treasury runway and risk buffers exceed defined thresholds?
- Should the DAO publish regular reports showing how much AAVE was bought, where it is held, whether it is restricted, and what its permitted future uses are?
- Should AAVE granted to contributors or service providers from bought-back tokens be subject to vesting, lockups, or sell restrictions?
- If the DAO rejects burn entirely, what alternative mechanism gives passive AAVE holders clear and measurable value accrual?
Anticipating Counterarguments
“Burns are weak and only create short-term pumps.”
Burns can be weak if they are symbolic, unfunded, or used mainly for marketing. But a burn funded by real protocol surplus is different. It is not a promise. It is a permanent capital allocation decision.
“The DAO should reinvest everything into growth.”
Growth should be prioritized when reinvested capital has high expected ROI. But if Aave matures and generates surplus beyond risk, runway, and growth needs, holders should not be ignored indefinitely.
“Treasury-held AAVE is still valuable.”
Yes, treasury-held AAVE can be valuable. But it is not the same as burned AAVE. If the DAO can later redistribute or sell those tokens, passive holders do not receive permanent supply reduction.
“Burning AAVE destroys capital.”
Burning does reduce DAO flexibility. That is why a 100% burn model is not ideal. But partial, conditional burn from surplus is not reckless capital destruction. It is a deliberate return of surplus value to tokenholders.
“Staking rewards already create utility.”
Staking rewards benefit users who actively take protocol risk. That is useful, but it does not fully answer the passive holder value-accrual question.
“Buybacks are enough.”
Buybacks are a good start. But buybacks only become permanent holder accrual if the acquired tokens are burned, locked, or otherwise prevented from becoming future dilution or sell pressure.
Suggested Next Step
This thread is not asking the DAO to immediately approve a burn program.
The suggested next step is more modest:
Aave should open a structured discussion, or commission a formal analysis, comparing different surplus allocation models.
That analysis should compare buyback-to-treasury, buyback-and-burn, buyback-and-lock, staking/security rewards, fee sharing, treasury reserve growth, contributor funding, risk-buffer expansion, and hybrid models.
The goal should be to define a formal AAVE value-accrual framework that is transparent, measurable, and credible.
Conclusion
Aave is one of the strongest protocols in DeFi.
That is exactly why AAVE tokenomics should be held to a high standard.
This discussion should not be framed as burn vs no burn.
The real question is:
When Aave generates surplus revenue, what transparent and durable framework determines how much goes to safety, growth, treasury, security incentives, and permanent AAVE holder value?
Buybacks were a positive first step.
But buybacks into treasury are not automatically the same as permanent holder value accrual.
Aave should now move from discretionary buybacks toward a formal surplus allocation framework.
That framework should protect the protocol first, fund growth second, support security third, and when conditions allow, provide clear and measurable value accrual to long-term AAVE holders.
Aave has world-class protocol fundamentals.
The remaining question is whether AAVE can also have world-class tokenholder alignment.