The current utility for LEND is governance (yet to be fully implemented), and that’s it. After the transition to AAVE tokens, we should introduce transaction fees for those interfacing with the platform. A percentage of these fees should be allocated to reward AAVE token holders who have staked their tokens on the platform. The rewards would be distributed based on what percentage of total staked you hold. This is a far better utility and financial incentive to invest and hold the token than governance alone.
Check this out: https://docs.aave.com/aavenomics/
I think you’ll like what you see ;)
@JohnieB Aavenomics does have rewards for the tokenholders via staking and also for liquidity providers. One important feature the v2 will have is a Reserve Factor which means that Aave Protocol will be able to collect protocol fees into the Aave Reserve and distribute them accordingly to the Aave tokenholders, builders, grants, liquidity providers and liquidators depending on what the governance wants.
Thank you for the reply. Yes I see that now from the medium article linked above. I think this could be made more clear in future interviews / marketing efforts. For those who are not well researched on the project I feel the token utility is still not super obvious.
Exciting stuff, looking forward to the LEND to AAVE transition.
@JohnieB you make a good point here.
Although the details of the new tokenomics are now available, I have seen others who have the initial impression that AAVE will be purely a governance token. Going forward, it will be important to emphasise that there is a lot more to the token than just governance rights. Not only to potential token holders but most importantly to users of the protocol, since the tokens will be used to secure it.
I agree with @JohnieB. I would like to see some rewards built into the token for token holders which DO NOT require full staking in the SM. As I understand it, there is potential to lose your staked tokens if there is a ShortFall Event (of which there are many scenarios this may happen, so it is really not unrealistic in a new protocol). Therefore it seems unwise to stake ones whole portfolio in the SM - I agree that adding to the SM pool is important and should be rewarded more than if just holding the tokens outside the SM, however I would like to see token holders have a more risk free way of earning fees or getting rewards without having to take on such huge risk (even if it is a smaller reward than those staking in the SM).
If you hold your AAVE tokens outside of the security module, you still benefit from a general increase in network value as Aave takes over the world But personally, I think if you’re not willing to put your value at risk by staking, you don’t deserve as much upside as active participants.
It’s not staking in the traditional sense though (as per PoS layer 1’s like Eth2, Tezos etc ), it’s staking funds in an insurance fund which will be used to pay out other users of the system if there is a mistake int the protocol, which is riskier by an order of magnitude than traditional staking in PoS layer 1’s. It is absolutely imperative that the token holders do be rewarded fairly as we don’t want to see a successful protocol at the detriment of token holders (it should be both).
Security module stakers will govern the protocol parameters to insure proper risk management. I see this as being fairly similar to the active management involved in L1 POS staking: eg maintaining continuous uptime, avoiding double signing, etc. People who just hold tokens in a wallet are free riding on the efforts of more engaged community members, so it’s makes sense that they earn less returns, while also having less value at direct risk of loss.
Maybe another way to look at is is common equity vs preferred shares. The preferred share holders face less risk of capital loss, but they also have less potential financial upside and aren’t able to vote. This tradeoff is fair, and allows investors to pick the mix of risk/return that suits them best.
I completely disagree - if there is a mistake or error in the protocol and a user loses funds, the stakers in the PoS do not hand out cash/tokens/equity to directly cover their loss. Likewise if I own any sort of equity and a customer loses cash, the shareholder does not directly provide the customer their shares to cover his/her loss (the company pays for this loss if redeemable). Of course, if there is a harmful bug in a PoS protocol or mistake made by a traditional equity company the equity holder or staker can lose value from depreciation of the token or share value from lack of confidence in the market etc., but my main point is that they do not insure the user with their own shares/tokens - so this model is entirely different. I think it might be better to have a medium article or well articulated explanation from the team on exactly how the ShortFall events may occur (and why they may occur) and summarise the remoteness of them happening.
I am not saying that that stakers in the SM should not be rewarded handsomly, they should as they are putting their capital at risk. However I think token holders should be able to contribute in a less risky manner which also provides some fee generation to them to make up for lack of token burn in v2 (correct me if I am wrong on that but as I understand it the token burn mechanism has been removed too).
Being blunt, I am not sure how well the token will accrue value if (i) inflation is added (which i am fine with here, it is sensible), (ii) token burning feature removed, and (iii) they cannot get any rewards from protocol fees unless they stake in the SM.
@BTCutiful these are some interesting thoughts.
I agree that as we move towards implementation it would be great for the community to be able to see some info showing mock-up shortfall scenarios and the response from the protocol.