My financial economics lecturer, when I was an undergrad, taught us that companies do buybacks when they are so out of ideas for making a return on capital that they decide to pump the stock directly themselves
Worth remembering it doesn’t make a company more valuable. It takes surplus that already belongs to stockholders and gives it to some of those stockholders. The stock does usually go up due to reduced supply. Though that isn’t guaranteed. But it is only an acceleration of value due to the stockholder anyway. They should have got the value as a cashflow / dividend eventually.
It isn’t exactly the same with a token but it is similar
Following on this point, which I think it is pretty fundamental and easily forgettable sometimes. A medium-term objective of the community should be to increase vote participation, let’s not forget that even if AAVE and its flavors have different utilities, it is by nature a governance token.
It depends of course on the whole vote model definition, but what I’m clearly against is that only people locking for a long time for voting has influence on all the decisions of the ecosystem.
I can agree that boost by locking time on certain models can give good results, but having that as base for the whole voting (and specially with penalty) transform AAVE in purely a gear for some artificial game-theory based model, which mainly derivates on a really small number of parties controlling the whole ecosystem.
I think it is possible to use those dynamics in a controlled way and still having a healthy model, but I’m at least sceptical of going all the way.
Concerning the buy-back and distribution of AAVE tokens, I think it has some problems:
The revenue of the protocol is not so big for now as to start concentrating even more holdings on AAVE token.
Specially with non-stable coins, I don’t really like the idea of the treasury starting selling tokens to buy Aave. Sell-side is something that other projects should take into account on their models, but I don’t really think it is “friendly” with them to introduce selling as part of any tokenomics on our side, at least not systematically.
One aspect to consider of these type of tokenomics initiated by Curve is the minting. What can initially appear as big dilution for holders is actually not at all, as it gets really compensated on other sides. Just as a reflection to not completely discard minting on any of our future ideas, if good arguments defending it.
A few great solutions that many have posted about so far with good consensus, and I am going to do a summary here for anyone reading TLDR (please let me know if I missed something important): Thanks everyone for contributing to this interesting discussion.
1) The CRV incentive model: lock up for boosted yield
A sub point here is to have other protocols locking up AAVE or add AAVE to their treasury:
Last sub point here is booster a la CRV:
2) Finding better ways to manage the treasury for higher yield or improve the AAVE ecosystem:
For now I would focus on the CRV incentive model, any ideas on how we want to do it?
Do we want lock ups like curve where if you lock up for more years you get more boosted yields?
While for permissionless asset listing backed by AAVE, I think it’s better to wait for v3.
Im curious as to why no DeFi projects convert their protocol revenue into stable coins and pay out the token holders like a dividend. Token holders could choose to buy more $AAVE with their dividend or do something else. I’d be a huge fan for this and I don’t understand why no one seems to be doing it. Thoughts?
Is it seriously so hard to understand that spending protocol revenue for short term gains of AAVE holders is one of the most counter productive things that could be done?
Why does a start-up not pay dividends, even though they might turn a profit? Because the money is reinvested to further the growth of the start up. It’s the same here, only that it might not be a direct reinvestment, but the building of a war chest for further development.
The difference is that, in the start-up world, where VCs rule, investors understand that it is way more profitable to wait, say 10 years, for the company to turn into a unicorn and they make their profit with share sells, as opposed to getting 10 cent per share per year over 10 years and the company doesn’t grow but stagnates.
Now take the crypto community: “weN 5000% lol”, “pAy diVidenD, 3$ pEr YeAR, eZ win!!!11one”
And yes. 3$ per year would be what you would get per 1 AAVE, based on W1 2022 numbers (all chains).
Thanks for the reply.
I understand the rationale of reinvesting profits into a company to further growth and I think Aave is in such an early stage that I see it more valuable to continue reinvestment. That being said, do you think many years from now DeFi protocols may choose to pay out dividends as they reach their terminal stages of growth? $3 annual dividend would put the dividend yield around 1.4% at current price ~$216, which I suppose is comparable to traditional banks, JPM paying 2.4% at current price. Thanks for mentioning the hypothetical dividend payment though. How are you arriving to that? W1 2022 had $6.585M revenue, annualized to $343.367M. Divide by circulating supply of 13.479M tokens I arrive at $25.47 annual dividend per token.
The only revenue that is not automatically redistributed to liquidity providers/borrowers/liquidators is the one collected by the ecosystem collector.
That was: 493,939$ for Ethereum V2, 116$ for Ethereum AMM, 302,532$ for Polygon and 201,313$ for Avalanche. Which makes it 997,900$ in total.
997,900 x 52 weeks equals 51,890,800$ divided by (max!) supply of 16,000,000 makes that 3.243175$.
And also, if we’re talking about profits. There technically was no profit in that week. Because we also distributed 9,541,419$ in AVAX, WMATIC and stkAAVE in that week. Technically, the protocol doesn’t pay for WMATIC and AVAX because that comes out of the chains growth funds. But the treasury payed the full amount of 2,849,974$ in AAVE to incentivise that anything at all can flow into the ecosystem collector. So technically, no, there is no real profit right now.
Edit: To make it complete, we also distributed 2,035,860$ in stkAAVE to the Safety Module in that week. “Profit”.
I was pulling off token terminal and was only taking total revenue, whoops. I need to learn the allocation of the revenues.
Revenues collected by the Ecosystem Collector is what I’m looking for. Where can I monitor the funds collected by the ecosystem collector on a regular basis?
Is the $2.035M paid out to stkAAVE safety module in addition to the $2.849M in AAVE figure or a portion of? This forum thread may not be the best place for me to spam you with questions about how the revenue flows operate. Are there any resources you recommend take a look at? Thanks.
This thread gives you weekly reports on how the revenue flows. And, of course, the corresponding ecosystem collector smart contracts would be a place to see how much is accumulated (and continues to be accumulated as most of it is in aTokens).
Agree with above sentiment, we’re still in the early stage of Aave, there’s a lot more to ship and protocol should focus on sustainability first.
sustainability means reaching a protocol treasury and protocol fee collection that allows self-funding long term.
treasury current holds 40.5M$ of assets, these assets produce a yield that could definitely be optimized but already currently yield 1.5m$ of interest/year collected considering a conservative 4% return.
That’s below current expenses but with V3 deployments, portals fees and new products I’m quite confident the protocol can reach self sustainability in 2022.
The protocol has the ecosystem reserve that currently pays ~3-4$ for every $ of protocol fees collected, this reserve is not infinite and need to be optimized, because it’s a race to reach self-sustainability before the ER runs out of funds.
until we reach and go beyond that point, I would personally be opposed to any direct retribution of protocol fees to the holders. There’s many ways to put AAVE at work for decent yield, (Safety Module, Yield farming) no need to sacrifice the long term for the short term.
I think the nature of one thing is more important. How much money you earn is secondary. Even if you share only 1% or even 1 / 1000 of the agreement income to token holders (or lock holders), it is a great encouragement for holding AAVE, because defi still has a lot of room for growth, but the money you share actually has little impact on the development of the agreement, The development of the agreement will not be short of such a little money
I think the Aave token is fine as it currently is. It has a cap similar to Bitcoin, in this case at 16 million, and 13 million tokens have already been minted. As you mentioned there is huge value in the protocol. Therefore people like to use it, so it is in their best interest to help keep the protocol running. Thanks to the Safety Module they have that ability, and on top of that they earn interest on it. It also has governance privileges. Honestly I think the Aave token is simply undervalued mainly because of all the macroeconomic factors that are at play currently. As long as Aave continues to expand to new blockchains and into real world assets, I think Aave is just getting started. I think that the main focus should be on educating people about it and marketing it more.