[ARFC] Safety Module - Reduce Emissions

[TokenLogic]

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title: [ARFC] Safety Module - Reduce Emissions
author: @TokenLogic
created: 2026-03-02

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Summary

The publication proposes implementing the AAVE Emission reduction as presented in the Aave DAO Funding Insights forum post.

Motivation

As outlined in the Aave DAO Funding Insights publication, the Aave DAO’s buyback program has acquired over 205,000 AAVE (1.28% of total supply) in under a year, demonstrating the protocol’s strong net acquisition posture. With the DAO acquiring AAVE faster than it distributes, there is a clear opportunity to further reduce Safety Module emissions while maintaining robust security coverage.

stkAAVE participation has remained stable through previous emission reductions, net inflows of +98,600 AAVE in January 2026 and +60,100 AAVE in February 2026 indicate that stakers are resilient to moderate yield compression. At 16.78% of total supply staked, the Safety Module maintains strong coverage well above the levels needed for protocol security.

Source: coming soon

Meanwhile, the Aave Finance Committee has deployed deeper Protocol-Owned Liquidity (POL) for AAVE/wETH, removing the dependency on rented liquidity via stkABPT emissions.

The combined 29,200 AAVE saved annually represents nearly 0.18% of total supply, a meaningful reduction in annual AAVE emissions, valued at $3,212,000 at $110/AAVE.

stkAAVE

stkAAVE Emissions have been progressively reduced

To accommodate the AAVE emission reduction, the Cooldown duration is reduced from 7 days to 2 days, making stkAAVE more liquid and suitable for various integrations such as CEX Earn programs and Future markets.

stkABPT

The Aave Finance Committee provided deeper AAVE/wETH liquidity following the implementation of the February 2026 - Funding Update. The Aave DAO can now proceed to reduce AAVE emissions to stkABPT holders, knowing that sufficient and reliable AAVE/wETH liquidity is available to support AAVE liquidations.

Specification

The tables below summarise the key amendments to the SM and the anticipated impact on depositors’ yield.

Forward Looking Statement

TokenLogic will continue to monitor Safety Module participation and staker behaviour following these changes. If stkAAVE participation remains stable after the proposed emission reduction, further optimisations may be explored in future proposals.

The transition from stkABPT emissions to Protocol-Owned Liquidity marks a structural shift in how the DAO ensures market depth in the AAVE/wETH pools. The AFC’s POL strategy provides permanent, protocol-owned liquidity at near-zero marginal cost. Its effectiveness will be closely tracked.

These changes are part of the broader set of recommendations outlined in the Aave DAO Funding Insights publication, which also covers buyback program adjustments, GHO liquidity strategy, and treasury management priorities for 2026.

Disclosure

TokenLogic is an active service provider to the Aave DAO, the beneficiary of stream 100072 and the KPI as outlined in this publication. The scope of this engagement is available via this forum proposal.

TokenLogic supports and maintains an independent delegate voting platform within the Aave community.

TokenLogic and associated entities have no undisclosed material conflicts of interest at the time of submission.

Next Steps

1. Gather feedback from the community.
2. If consensus is reached on this ARFC, escalate this proposal to the Snapshot stage.
3. If the snapshot outcome is YAE, escalate this proposal to the AIP stage.

Copyright

Copyright and related rights waived via CC0.

[Mumbojumbo]

From Aave DAO Funding Insights:

1.) Adjust the annual buyback budget from ~$50M to ~$30M
2.) Reduce stkAAVE emissions to 220 AAVE/day

As both changes reduce value accrual for token holders, how should we maintain (or improve) the AAVE token’s value and minimize potential sell pressure?

[DTBAEE]

In the context of BGD labs and ACI withdrawing from AAVE, the AAVE token price suffered a heavy blow, and the token was sold off. Aave labs will receive $51 million through a vote controlled by itself. It is recommended to increase rather than reduce the yield of STKAAVE, to more than 10% per annum, to encourage investors to buy and hold AAVE tokens, which is the only meaningful thing to do for token holders.

Aave Labs recklessly misappropriated the funds of the Aave Dao。However, the STKAAVE reward, which is already very low, will be further reduced, which is too striking。Things can’t go too far, right?

[Mumbojumbo]

I understand the rationale for improving capital efficiency, but reducing incentives without presenting a stronger value proposition for the token is difficult to justify.

I cannot assess what the right APY should be, but every AAVE staked is AAVE taken off the market. There should be a sensible middle ground, but at this point this feels like punishing loyal holders and stakers.

Given the decline in the price of the AAVE token, I have a few questions:

1.) Does it make sense to reduce both sources of value accrual for the token?

2.) What is the long-term vision for the AAVE token?

3.) Do you consider adding more utility to stkAAVE, such as allowing it to be used as collateral for borrowing?

[CalBlockchain]

Curious as to where and how the 45,000 AAVE and 1,500 ETH will be used for POL. Will Balancer continue to be used, or other DEXs and which type of liquidity pool?

[Mumbojumbo]

To accommodate the AAVE emission reduction, the Cooldown duration is reduced from 7 days to 2 days, making stkAAVE more liquid and suitable for various integrations such as CEX Earn programs and Future markets

@TokenLogic would you mind elaborate on this reasoning?

Given the decline in the value of the AAVE token, and with the buyback budget now being reduced as well, wouldn’t it be more logical to preserve mechanisms that keep AAVE off the market?

This proposal appears to weaken tokenholder value on multiple fronts at once: it reduces value accrual, makes the token more liquid and therefore potentially more exposed to sell pressure, and diminishes the stickiness of staking.

Relying on potential CEX Earn integrations and similar use cases as justification is weak argument and misses the core issue.

[MrKris]

While I appreciate that AAVE must adapt to current market conditions, I question the need for yet another reduction in StkAAVE rewards without some form of tangible benefit to StkAave holders to offset yet another reduction.

Reducing the cooldown period to just two days feels pointless, and the vague promise of future CEX integrations is little more than a “pie-in-the-sky” offer—for me it simply doesn’t cut it.

If the goal is to ask StkAAVE holders to accept another cut, then at least make the trade-off worthwhile by offering something genuinely meaningful such as:

· Remove the cooldown period entirely,

· Enable StkAAVE as collateral

· Reinstate the GHO borrowing discount until Anti-GHO is actually launched (if it ever is).

At least that would make yet another reduction in StkAAVE palatable and I, and I suspect others would certainly be more understanding.

[Millesimillia]

In my opinion the whole Aave/ABPT emissions reduction process was driven by a very hard-nosed (even aggressive?) approach and the communication could have benefited from a bit more regard for softer ‘tokenholder relations’. I personally saw my expected income (i.e., a compensation I got for providing working capital in the form of ABPT) being reduced from 12% to 3% within a few months and nobody seemed to ever consider that this changes my economic calculus of holding a large portion of Aave long-term. I agree that it would be a good idea to give that topic some attention.

[stani]

The key question is that, in its original design, the Safety Module (SM) served as junior equity capital backstopping the Aave Protocol. With the implementation of Umbrella, users can now take the junior slice of the protocol’s insolvency risk directly (e.g., by staking aUSDC to cover USDC or aGHO to cover GHO). As a result, the AAVE Safety Module no longer performs that original function.

This progression is actually positive. AAVE as an asset no longer carries protocol bad debt as a liability factor, meaning potential insolvency risk should not be priced into the asset itself. However, with Umbrella now fulfilling the risk-backstopping role, the Safety Module’s staking incentives effectively become a one-way stream of spending, since the staking no longer provides direct value to the protocol.

The broader question, therefore, is whether capital should be reinvested into the business or returned to investors. A general rule in economics is that capital should first be invested into the business to support growth and strengthen its competitive position. Returning capital to investors typically becomes appropriate only when there are no sufficiently productive opportunities for reinvestment. Given the current protocol economics (approximately $100–150M in revenue, ongoing growth initiatives, and increasing competition), a significant portion of capital should likely be reinvested into the protocol to expand market share and develop new use cases, rather than risk inefficient capital allocation.

That said, I do believe there is room for the Safety Module, particularly because it introduces a cash flow component that is attractive to token holders. In the short term, removing the cooldown period and enabling StkAAVE to be used as collateral could represent a feasible and balanced approach.

Reinstating the GHO borrowing discount, however, is not technically feasible. The current implementation of GHO no longer supports that capability as native discount due to improvements made to its design.

[AlanWestbrook]

Many people hold AAVE and rely on its cash flow. Reducing these cash flows could push some holders to sell and move into other assets that provide yield. From that perspective, maintaining attractive incentives for AAVE holders is important for long-term alignment.

Regarding the Safety Module, I believe most stkAAVE holders are not particularly concerned about the 10% slashing parameter. If the protocol were to generate bad debt or face insolvency, the AAVE price would likely fall significantly anyway. In practice, what many stakers care more about is the cooldown period.

Because the cooldown exists, stakers must keep a portion of their capital in cash or liquid assets so they can hedge or exit through derivatives markets before the unlock period completes. If the cooldown were removed, this precautionary liquidity would no longer be necessary, and that capital could instead be fully allocated into AAVE. Removing the cooldown could therefore increase capital efficiency and encourage larger staking positions.

More broadly, I believe several measures could strengthen AAVE’s utility and ecosystem alignment:

1. Use buybacks for emissions – Buybacks and emissions are effectively a mechanism to route protocol revenue to AAVE holders. Using bought-back AAVE as emissions can reinforce participation and ecosystem incentives.

2. Expand stkAAVE use cases – Increasing the number of ways stkAAVE can be used would make staking more attractive and strengthen long-term alignment.

3. Allow LP staking for pools containing AAVE – For example, LP tokens such as AAVE-ETH or AAVE-UNI could be staked, with emissions calculated only on the AAVE portion of the LP. This would increase flexibility for users.

4. Liquidity incentives can be efficient, but the key is finding the right balance. The goal should be to strike a balance between encouraging long-term holding of AAVE and distributing emissions to support liquidity and ecosystem growth. With well-designed parameters, even a relatively small amount of emissions can help secure liquidity while still maintaining strong incentives for holders to keep AAVE staked or held long term.

Overall, reducing friction around staking and expanding incentive mechanisms tied to AAVE could help increase participation, liquidity, and the number of real use cases around the token.

[axieaur]

I passionately disagree with reducing $aave emissions further at this time. When times are good, it makes a lot of sense. But during these tough times, $aave emissions act as a boon for loyal $aave holders to make it through a crypto bear market. $aave is down a lot (down 60-70% from 6 months ago), so we stkaave holders have already been hit hard by the price decrease. Decreasing tokens distributed is a double whammy. I don’t think it’s the appropriate decision at this time to further punish $aave spot holders. In a year, we should revisit reducing $aave emissions, but this is not the time. The protocol has bought back over 218,000 $aave since the buybacks started. (source: Aave Analytics | TokenLogic ). The proposed savings in this proposal from decreasing rewards is only 6.6% of the buyback total. Using 7% of buybacks to maintain a stronger yield for another year to get out of these tough times is the correct decision in my opinion.

I agree with reducing buybacks (possibly even suspending them indefinitely until further notice) to rebuild treasury cash stockpile due to the following factors:

• $aave bought back is already sufficient
• revenue is lower in the current crypto environment, so cash is harder to earn
• that challenging business environment means it is critical to maintain a strong cash position, a cash fortress = safety
• it has been decided to make a huge investment in Aave Labs, so a stronger cash position should be rebuilt to accommodate for this investment
• once cash position is >$100m, we can reconsider increasing buybacks again

[axieaur]

Why did this go to a snapshot when consensus was clearly not reached here?

1. If consensus is reached on this ARFC, escalate this proposal to the Snapshot stage.

[DTBAEE]

Even ACI and BGD Labs have been forced out by Stani. What does the interest of us token holders matter now? Stani is now the emperor; the emperor can do whatever he wants, and the emperor controls the voting rights.Let’s just wait and see how “the emperor’s new clothes” unfolds.

[Mumbojumbo]

@stani

a significant portion of capital should likely be reinvested into the protocol to expand market share and develop new use cases, rather than risk inefficient capital allocation.

I believe we are already going in that direction:

With BGD Labs offboarding complete on 1st June 2026 and the potential introduction of the How Aave Wins proposal, the annual AAVE allocated to SPs is forecast to increase by 114%, from 26,850 to 57,500, in 2026 relative to 2025.

Also with:

Shifting from $50M to $30M per year in buyback.

The core issue is that there is no vision for the AAVE token.

100% of revenue to DAO - sounds great - let us direct 20% of that to create value for token. That is the best advertisement. People want to own a stake in the protocol they actively use.

Diminishing value accrual and utility for the AAVE token while simultaneously trying to support its price through buybacks will not suffice. Remember that. Markets will reprice the AAVE token accordingly, and buyback funds will be money thrown in the wind.

And of course, the Aave treasury, as the largest holder of the AAVE token, would also suffer from that outcome.

It would be far more prudent to increase the token’s utility (collateral use, something like anti-GHO mechanisms, and similar features) while preserving stkAAVE emissions and reducing buybacks (even more if needed), rather than doing the opposite. Value creation must be organic.

These initiatives should be strategically aligned.

[0xmonk]

@stani

AAVE as an asset no longer carries protocol bad debt as a liability factor, meaning potential insolvency risk should not be priced into the asset itself.

Agree to disagree. What you said may sound good in paper but the market sentiment differs. Just like the DAO governance disagreements wiped off more than 50% of the token price. So we got bad dept, I’m sure the market will react. We got hacked? Market will react.

@stani

The broader question, therefore, is whether capital should be reinvested into the business or returned to investors

To this point, I believe we must take a balanced approach. Eg, 60% to reinvest and 40% for investors, especially since protocol is running for almost a decade now, it’s high time to think about ROI of the investors.

At this point of time, there is no incentive for token holders to encourage them holding.

[DTBAEE]

From 2017 until now, no one has ever cared about the interests of token holders. This proposal is opposed by almost all token holders (easily discernible by the number of upvotes), but it seems likely to pass because Aave Labs has absolute voting power.

The proposal aims to reduce the annual expenditure of 14,000 STKAAVE tokens by token holders. Currently, there’s a lot of scrutiny regarding token holders’ contributions, while Aave Labs’ annual funding requirement of $51 million and 75,000 tokens goes unchallenged. TokenLogic, as a partner, also enjoys stable income.

No one cares about the interests of token holders. Your opinions are irrelevant. The current DAO is under Stani’s dictatorship; the DAO is dead. Sell your tokens and let Stani and Aave Labs play their games.