Aavenomics Questions

I understand the ER now is the one that gives incentives to the LP, and not by the market anymore (as it is today), is that right?

By incentives as of today, do you mean the interest paid to those providing liquidity? The interest will continue to be paid as it already is, however the ecosystem incentives being paid to liquidity providers would be in addition to the interest paid.

The fees to the SM, but don’t they also have to go to the ER to keep the incentives running?

They would if this extra incentive for liquidity providers was going to be endless (which isn’t good for inflation) - but in this other thread it’s discussed that the additional allocation is for a year worth of incentivizing liquidity, of course this incentive is on top of the interest rates for depositing. So there would be no need for the fees to feed back into the ER.

If the fees are in the native token, how are they converted into Aave or eth for them to be usable in the SM or Backstop module?

So with the SM, the fees aren’t necessarily being used to contribute to the SM itself but the fees are what is being used to incentivize users to deposit into the Safety Module, which uses AAVE/ETH. Those who deposit are taking on a risk in the instance of a shortfall event, as such are rewarded with fees and part of the safety incentives from the ecosystem reserve. For the fee itself, the governance will be able to choose what token it’s in, ETH/stablecoin.

I understand that Aave is only emitted when rescuing the protocol. Is there another way the system could increase supply?

Other than increasing supply to rescue the protocol, governance has full control over the token so it could increase it if there was a reason to that aligned with the token holders in the future.