As a long term investor in AAVE tokens, I have a significant vested interest in the protocol’s long-term success. AAVE has been a cornerstone of DeFi, and with its TVL recently hitting all-time highs—surpassing $73 billion in net deposits as of September 2025—it’s clear the protocol is thriving in terms of adoption. However, despite managing over $70 billion in assets, AAVE’s profit margins remain disappointingly low, with the protocol capturing only a fraction of the revenue generated from borrowing and other activities. For AAVE and its $AAVE token to secure a vibrant future, we must prioritize profitability urgently.
If we fail to enhance margins, we face serious risks: (A) An inadequate “war chest” to fend off well-funded DeFi challengers, leaving us vulnerable in a competitive landscape; and (B) Emulating the airline industry—an innovative, transformative product that’s ultimately a poor business model and investment due to razor-thin margins and high operational overhead.
The goal of this post is to ignite a thoughtful discussion on the levers AAVE can pull to boost profitability. By cataloging these options comprehensively, we can evaluate and prioritize them through governance. Identifying a lever doesn’t mean immediate activation; it’s about building a toolkit for strategic decision-making. I’ve expanded on my original ideas below, incorporating current data and additional solutions drawn from ongoing community discussions and protocol developments.
Option 1: Optimize and Increase Reserve Factors Selectively
The reserve factor determines the portion of interest payments that flows directly to the AAVE DAO treasury, acting as the protocol’s primary revenue capture mechanism. Currently, reserve factors vary by asset: for example, ETH is at 15%, USDC/USDT at 10%, and wstETH at a higher 35%. These rates have helped generate around $100 million in annualized revenue, but there’s room for adjustment.
Raising reserve factors from the current 10-15% average to 20-30% on select assets could significantly enhance treasury inflows without broadly compromising competitiveness. For instance, on high-demand assets like wstETH, where utilization is strong, a modest increase could add millions in annual revenue. However, we must model the impact carefully—higher factors might reduce supplier APYs, potentially driving liquidity to competitors like Compound or Morpho. I propose commissioning a risk analysis (via Gauntlet or Chaos Labs) to simulate scenarios: What happens to TVL and borrow volumes if we hike factors on stablecoins by 5-10%? This could be phased in, starting with underutilized assets to minimize disruption.
Option 2: Aggressively Position GHO’s Borrow Rate for Growth and Peg Stability
GHO, AAVE’s overcollateralized stablecoin, offers tremendous profitability potential since the protocol captures nearly all borrowing fees (with reserve factors effectively at 100% for GHO minting). Current borrow rates for GHO hover around market levels for USDT/USDC (typically 4-5%), but setting it ~2.0% below competitors could supercharge adoption, driving billions in additional borrowing volume.
Concerns about de-pegging are valid—if rates drop too low, GHO could trade below $1, eroding trust. However:
A. Embrace market dynamics: Let natural arbitrage correct discounts. Users can buy cheap GHO on secondary markets and repay loans, profiting while stabilizing the peg. Since GHO is overcollateralized, the protocol faces minimal solvency risk.
B. Protocol intervention: Allocate $25-50 million from the treasury to a dedicated liquidity pool for buying discounted GHO. This could be automated via smart contracts, turning peg defense into a profitable arbitrage opportunity for the DAO. Recent integrations, like with Ethena’s USDe, show how targeted caps can manage risk while scaling.
To refine this, we could implement dynamic rate adjustments tied to peg deviation (e.g., via oracles), ensuring rates float competitively without manual governance tweaks.
Option 3: Establish a Professional Treasury Management Desk with Conservative Strategies
Major TradFi banks derive substantial profits from trading desks, and AAVE could follow suit by leveraging its ~$500 million treasury (largely in ETH and stables). Engaging a third-party specialist (e.g., via a governance-approved RFP) to run low-risk strategies like selling covered calls on ETH holdings makes sense—AAVE has massive ETH exposure, and options premiums could generate 5-10% additional yield annually on idle assets.
Focus exclusively on covered calls to minimize downside: Sell out-of-the-money calls on staked ETH, collecting premiums while retaining upside if ETH moons. Risks include opportunity costs if calls are exercised, so cap exposure at 10-20% of treasury ETH. Expand this to other strategies like basis trades or yield farming with protocol-owned liquidity (POL), but prioritize audited, conservative approaches to avoid volatility. Community precedents, like MakerDAO’s treasury optimizations, show this can work without compromising decentralization.
Option 4: Better Monetize AAVE’s Platform Value in New Protocol Integrations
AAVE must more effectively price and capture the immense value it provides when integrating or launching new protocols on its platform. The recent Plasma mainnet launch on September 25, 2025—where AAVE enabled scalable lending for stablecoins like USDT, Ethereum assets, and tokenized gold—serves as a prime example. While the community celebrates the rapid success, with Plasma’s AAVE-powered savings vault attracting over $3.5 billion in deposits within 24 hours (making it the fastest-growing AAVE market ever), it’s evident that Plasma benefited disproportionately. AAVE’s infrastructure, liquidity, and reputation drove this explosive growth, yet the protocol received minimal direct compensation beyond standard fees.
In TradFi equivalents, a vital service provider like AAVE would command hundreds of millions in upfront fees, plus equity warrants or revenue shares, for such a high-impact integration. The value AAVE imparts—through instant credibility, user access, and technical enablement—is worth billions in potential TVL and adoption, but we’re currently realizing only a fraction of that in true economic upside. To address this, future integrations should include structured deals: Negotiate token allocations (e.g., warrants in the partner’s native token like Plasma’s XPL), ongoing revenue shares from joint products, or milestone-based payments tied to TVL milestones. This could be formalized via a dedicated “integration fund” or governance framework, ensuring AAVE captures 10-20% of the value created while fostering ecosystem growth. Modeling after successful TradFi M&A or partnership structures would position AAVE as a savvy business, not just a public good.
Option 5: Rationalize Network Deployments and Focus on High-Yield Ecosystems
AAVE operates across numerous L2s and alt-L1s, but over 86% of revenue comes from Ethereum mainnet—many side deployments are net losses due to low utilization and high maintenance. Closing underperforming instances (e.g., via governance proposals) could save millions in operational costs and refocus resources on profitable chains like Base or Arbitrum.
Tie this to V4’s cross-chain features, enabling seamless liquidity migration. Prioritize ecosystems with CeFi integrations (e.g., OKX’s X Layer) or strong distribution (e.g., via partnerships like Galaxy or Nasdaq). This “prune to grow” approach could improve overall margins by 10-20% without sacrificing core TVL.
Option 6: Develop Investment Banking-Like Services for DeFi
Investment banking contributes around 5% to bank revenues through underwriting, advisory, and deal-making at firms like Goldman Sachs and Morgan Stanley. AAVE could analogize this by offering “underwriting” for new asset listings, RWAs, or protocol launches—charging upfront fees, equity stakes, or success-based commissions for risk assessments, liquidity bootstrapping, and governance support.
For example, create a dedicated fund to seed promising RWAs with loans at preferential rates in exchange for revenue shares. This leverages AAVE’s expertise in risk modeling (via partners like Gauntlet) to facilitate deals, much like TradFi banks earn from IPOs or M&As. Starting small with audited processes ensures safety, potentially adding tens of millions in high-margin income as DeFi matures.
Option 7: Raise Capital Through Strategic GHO Sales to Fund Enhanced $AAVE Buybacks
AAVE could strategically raise capital by minting additional GHO using treasury assets as collateral (e.g., depositing ETH or stables into the protocol and borrowing GHO), then selling portions of this minted GHO into the market via OTC deals, AMMs, or targeted liquidity provisions. This approach would increase the circulating supply of GHO—currently around $500 million—promoting broader adoption, deeper liquidity pools, and greater utility as a stablecoin in DeFi ecosystems, while generating immediate capital inflows in high-value assets like USDC or ETH.
The raised funds could then be directed toward more substantial $AAVE token buybacks and burns, scaling current weekly burns (exceeding $1 million) to $5-10 million monthly or more, depending on market conditions. By reducing $AAVE’s circulating supply, this creates a deflationary mechanism that signals strong protocol health and confidence, potentially driving token price appreciation and attracting long-term holders. To mitigate peg risks, sales could be executed gradually, paired with the arbitrage mechanisms outlined in Option 2, and modeled after successful strategies like those used by MakerDAO for DAI expansion. This dual benefit—expanding GHO’s float for ecosystem growth while bolstering $AAVE’s value proposition—positions AAVE as a more attractive investment, fostering a virtuous cycle of adoption and profitability.
Option 8: Commission a Dedicated Team to Identify Partners for Launching or Promoting a Digital Asset Trust (DAT) or ETF for AAVE
To accelerate institutional adoption and mainstream visibility, AAVE should actively commission a specialized team—potentially through a governance-funded RFP—to search for and partner with established organizations capable of creating or expanding a Digital Asset Trust (DAT) or spot ETF focused on $AAVE tokens. Building on existing products like the Grayscale Aave Trust, which already provides exposure to AAVE for traditional investors without direct token handling. This initiative could seek high-profile advocates akin to Michael Saylor’s relentless promotion of Bitcoin via MicroStrategy’s holdings or Tom Lee’s bullish forecasts on Ethereum’s potential.
The team would evaluate firms like Grayscale, VanEck, or BlackRock to either enhance current trusts (e.g., by improving liquidity and marketing) or push for regulatory approvals on a full spot ETF, which could unlock billions in inflows as seen with BTC and ETH ETFs. Such vehicles democratize access for pensions, endowments, and retail via traditional brokers, driving demand for $AAVE and bolstering the protocol’s “war chest” through increased token value and ecosystem fees. By finding a “Saylor-like” champion—perhaps a forward-thinking CEO or fund manager—to publicly evangelize AAVE’s role in DeFi, we could amplify narrative momentum, attract passive capital, and solidify AAVE as a blue-chip asset. This proactive step, with a modest initial budget of $5-10 million, could yield exponential returns in TVL and profitability as institutional money floods in.
These levers aren’t mutually exclusive—combining them (e.g., GHO rate tweaks with V4 modularity) could compound effects.
I urge the community to discuss in the governance forum: What simulations do we need? Which to prioritize? Let’s build a more profitable, more resilient AAVE together.