[TEMP CHECK] Proposal for an Institutional-Grade AAVE Buyback Program

Governance General
1

[TEMP CHECK] Proposal for an Institutional-Grade AAVE Buyback Program

Author: @onostrat

Date: 2025-06-27

Summary

This proposal outlines a strategic, high-impact initiative to fundamentally enhance the tokenomics of Aave and solidify its position as a cornerstone of decentralized finance (DeFi). We propose that the Aave DAO attract a major institutional fund or partner to execute a substantial $AAVE token buyback program, inspired by the successful corporate treasury strategies of Michael Saylor’s MicroStrategy. This initiative will be capitalized through the issuance of carefully structured debt instruments, with the proceeds strategically deployed to acquire $AAVE from the open market, thereby systematically reducing the circulating supply and creating a powerful scarcity dynamic.

Executive Summary: The Aave Advantage Amplified

Aave stands as a titan in the DeFi lending space, boasting a robust protocol, a vibrant community, and a substantial treasury. However, to navigate the next phase of DeFi’s evolution and solidify its long-term value proposition, a more aggressive and strategic approach to capital management is required.

By partnering with a leading institutional entity to issue debt and execute a large-scale $AAVE repurchase program, the Aave DAO can:

  • Engineer Scarcity: Systematically and transparently reduce the circulating supply of $AAVE, creating a direct and sustainable tailwind for token value appreciation.
  • Broadcast Unwavering Confidence: A debt-financed buyback signals profound long-term conviction in the Aave protocol, attracting a new wave of institutional and retail capital.
  • Fortify the DAO Treasury: The acquired $AAVE will significantly bolster the DAO’s treasury, providing a war chest for strategic ecosystem investments, development grants, and enhanced insurance capabilities.
  • Optimize Capital Efficiency: Utilize the present low-cost capital environment to fund acquisitions, aligning the cost of capital with the anticipated future growth of the Aave ecosystem.

The Blueprint: A Debt-Financed Repurchase Strategy

The core of this proposal is to mirror the successful asset accumulation strategy employed by MicroStrategy, but tailored for the unique structure of a decentralized autonomous organization.

The Mechanism:

  1. Institutional Partnership: The Aave DAO, through a formalized governance proposal, will seek and partner with a reputable institutional fund or a consortium of funds.
  2. Debt Issuance: The partner institution will facilitate the issuance of debt instruments, such as bonds or convertible notes, to raise a significant tranche of capital. These instruments will be designed with terms (maturity, coupon rate, conversion options) that are favorable to the Aave DAO and aligned with its risk tolerance.
  3. Capital Deployment: The proceeds from the debt issuance will be transferred to a dedicated, transparent, and multi-signature-controlled wallet managed by a mandated committee of the Aave DAO.
  4. Systematic Buybacks: This committee will execute a pre-defined and publicly auditable $AAVE buyback program on the open market over a specified timeframe. The pace and volume of these buybacks will be strategically managed to maximize impact while minimizing market disruption.
  5. Treasury Allocation: The repurchased $AAVE tokens will be vested in the Aave DAO treasury, subject to governance-approved allocation for ecosystem development, grants, and strategic reserves.

The Rationale: Core Advantages of This Approach

This strategy offers a multitude of benefits that compound to create a powerful value-creation cycle for the Aave ecosystem.

Core Advantage Detailed Elaboration
Proven Precedent of Success Michael Saylor’s strategy with MicroStrategy has demonstrated the profound impact of leveraging debt to acquire a scarce digital asset. This approach has not only significantly increased the value of their holdings but has also turned their corporate treasury into a primary value driver. Aave can replicate this success in the DeFi space.
Elevating a Pilot Program to Institutional Scale The Aave DAO’s existing contemplation of a weekly buyback is a step in the right direction. This proposal seeks to elevate that pilot concept into a strategic, high-impact program with the firepower of institutional capital, creating a far more significant and lasting effect.
Tailored Financial Instruments The structure of the debt instruments can be highly customized to suit the Aave DAO’s specific needs. This includes varying maturities, fixed or floating interest rates, and the potential for convertible features that could offer the debt holders upside in the future success of the Aave protocol, further aligning incentives.
A Resounding Vote of Confidence A formalized, institutionally-backed buyback program sends an unequivocal message to the market: the Aave DAO has deep conviction in its future and is willing to make a significant, long-term investment in its own ecosystem. This will bolster confidence among all stakeholders, from individual stakers to large institutional players.

Restructured Vision

1: Architecting Scarcity, Engineering Value

  • Sustained Buying Pressure: A consistent and transparent buyback program will exert continuous downward pressure on the available supply of $AAVE on the open market.
  • Enhanced Long-Term Value: By methodically reducing the circulating supply, the intrinsic value of each remaining $AAVE token is amplified, creating a foundation for long-term price appreciation.
  • Psychological Market Impact: The public commitment to a large-scale buyback program creates a powerful psychological effect, deterring short-sellers and encouraging long-term holding.

2: Fortifying the Ecosystem’s Financial Bedrock

  • A Treasury of Strategic Power: The influx of repurchased $AAVE will transform the DAO’s treasury into a formidable strategic asset. These tokens can be deployed to fund ambitious new projects, attract top-tier development talent through grants, and expand Aave’s multi-chain presence.
  • Deepening the Insurance Moat: A significant portion of the acquired $AAVE can be allocated to the Aave Safety Module, drastically increasing the insurance backstop and providing unparalleled security and confidence to users of the protocol.
  • Fueling Protocol Growth: A well-capitalized treasury enables the DAO to be more aggressive in its growth initiatives, including marketing, business development, and strategic partnerships, further driving Total Value Locked (TVL) and user adoption.

3: The Institutional Seal of Approval

  • Bridging DeFi and Traditional Finance: A successful partnership with a major institutional fund for a debt-financed buyback would be a landmark event, bridging the gap between the traditional financial world and decentralized governance.
  • Elevating Aave’s Brand: This initiative would elevate Aave’s standing in the global financial markets, attracting a new class of sophisticated investors and cementing its reputation as a blue-chip DeFi protocol.
  • Unlocking New Avenues of Capital: This initial partnership could pave the way for future, more complex financial collaborations, providing the Aave DAO with a diverse toolkit for capital management and growth.

4: Solidifying AAVE’s Economic Architecture

  • A Formalized Capital Return Program: This program would establish a structured and predictable mechanism for returning value to $AAVE holders, a hallmark of mature and well-managed financial assets.
  • Reinforcing Governance Participation: A clear commitment to enhancing token value will incentivize more active participation in Aave’s governance, leading to a more engaged and robust community.
  • Future-Proofing the Protocol: A stronger, more valuable $AAVE token and a well-funded treasury provide the ultimate foundation for future innovation, ensuring that Aave has the resources to adapt and thrive in the ever-evolving landscape of decentralized finance.

Separation of Obligations

  • The Fund’s Investors: These are the individuals or companies that invested their money (e.g., dollars or stablecoins) into the institutional fund. Their asset is a share in the fund itself. They expect a return on their investment from the fund, not directly from the Aave DAO.
  • The Institutional Fund: The fund gathers capital from its investors and provides it to the Aave DAO in the form of debt. In return, the fund receives a debt instrument (e.g., a bond) from the DAO. The DAO’s obligation is to repay this debt with interest to the fund. The fund’s revenue comes from the interest and principal payments it receives from the DAO.
  • The Aave DAO: The DAO receives capital (e.g., $100 million in USDC) from the fund. The DAO uses this money to buy $AAVE tokens on the open market and places them into its treasury. These tokens become an asset of the DAO. The DAO’s liability is not the tokens, but the debt owed to the fund, which it must service (pay interest on) and repay by the agreed-upon deadline.

How Does a Fund Investor Get Their Money Back?

An investor who wants to “sell their share” will interact only with the fund they invested in. The mechanism for returning their capital depends on the structure of the fund and the debt instrument, but it is in no way connected to selling $AAVE tokens from the DAO treasury.

Here is how the fund gets the money to pay back its investors:

  • Interest Payments from the DAO: The Aave DAO will regularly pay interest on the debt to the fund. The DAO will generate these payments from its revenue streams (e.g., protocol fees). The fund, in turn, uses these proceeds to make distributions to its investors.
  • Principal Repayment: When the debt matures (e.g., after 5 years), the Aave DAO is obligated to return the entire principal amount (the $100 million) to the fund. The DAO can do this using its accumulated revenue or by refinancing the debt.
  • The Result: The fund pays back its investors using the capital it receives from the Aave DAO as part of the debt repayment plan.

Then Why Are the Tokens in the DAO Treasury?

The purchased $AAVE tokens are not collateral that the fund can seize and sell. They are a strategic asset for the DAO that:

  1. Reduces Supply: The primary goal is to remove tokens from the market to create scarcity and support the price. Selling these tokens to repay the debt would negate the entire purpose of the program.
  2. Strengthens the Treasury: These tokens increase the DAO’s assets. In the future, by a governance vote, the DAO can use them for grants, rewards, strategic investments, and other initiatives that will further develop the ecosystem and generate even more revenue to service the debt.

Summary Table

Party What do they receive? What is their obligation? How are its investors paid back?
The Fund’s Investor A share in the fund (a claim on future profits). To provide capital to the fund. They receive payments from the fund when it gets paid by the Aave DAO.
The Institutional Fund A debt instrument from Aave DAO (the right to demand repayment of the debt with interest). To provide capital (USDC, USD) to the Aave DAO. It uses the interest and principal payments received from the Aave DAO.
The Aave DAO Capital (USDC, USD) from the fund. $AAVE tokens for its treasury after the buyback. To service and repay the debt owed to the fund, using protocol revenue. It does not pay the fund’s investors directly. Its only obligation is to the fund.

Therefore, the $AAVE tokens are securely held in the DAO treasury, working for the benefit of the entire ecosystem, while the financial obligations to investors are handled through a classic debt model that does not affect these strategic reserves.

Conclusion

The proposal to initiate a debt-financed $AAVE token buyback program is more than a financial maneuver; it is a strategic imperative. It is an opportunity to take a page from the playbook of one of the most successful corporate treasury strategies of our time and apply it to the unique and powerful context of a decentralized autonomous organization.

By embracing this bold initiative, the Aave DAO can accelerate the scarcity of its native token, fuel the next wave of protocol growth, achieve a new level of institutional validation, and ultimately, fortify the economic foundations of the Aave ecosystem for years to come.

1 Like
2

Thanks for the proposal–always encouraging to see ideas from new members of The Dao.

However Aave is already engaged in a buyback program & didn’t need either to issue “structed debt instruments” (paid for out of profits) or pay fees to a “major financial institution” (which Aave already is), just a governance vote and utilize existing service providers expertise. Last time I checked the buyback was showing around 30% profits and 50K+ Aave and counting removed from circulation. (0x22740deba78d5a0c24c58c740e3715ec29de1bfa)

Please explain to me how this proposal is better than what Aave is already doing? As, until then I won’t support this.

3 Likes
3

Adding to @MrKris here is everything you need to know about the current buyback program which is fully paid by revenue made from the protocol.

1 Like
4

This proposal is bold and potentially transformative, but as with any DAO engaging in structured debt issuance and large-scale token acquisition, it raises several legal, regulatory, and governance issues that must be carefully considered:

1. Regulatory Risk of Structured Debt in a DAO Context

While the fund structure is presented as a separation of obligations between investors, the fund, and the DAO, regulators may still scrutinize whether the debt instruments issued (especially if they are convertible or revenue-linked) constitute securities under applicable laws. This could expose the DAO or institutional partners to regulatory oversight, especially under U.S. SEC or EU MiCA regimes.

→ Recommendation: A legal opinion should be secured to classify the debt instrument and ensure it does not unintentionally trigger securities or investment fund regulations across jurisdictions where token holders or fund participants reside.

2. Fiduciary Duties and DAO Accountability

Introducing institutional-grade debt financing places a new kind of financial liability on the DAO. While DAOs are decentralized and do not have traditional directors, the formation of a mandated committee with control over a multi-sig wallet creates a de facto fiduciary structure. The committee members may be held legally accountable for mismanagement or deviation from the buyback plan, depending on jurisdiction and enforcement trends.

→ Recommendation: Clear indemnification provisions, conflict-of-interest disclosures, and documented governance approvals should be in place for committee actions.

3. Treasury Risk and Long-Term Solvency

Issuing debt based on anticipated protocol revenue introduces financial leverage into a decentralized system not traditionally designed for debt service obligations. If protocol fees decline or DeFi markets contract, the DAO could face difficulty servicing the debt, raising insolvency risks and impacting long-term sustainability.

→ Recommendation: Simulate stress scenarios and publicly disclose repayment contingencies, including the possibility of restructuring or refinancing terms.

4. Governance Token Impact and Potential Centralization

This program will concentrate a significant amount of $AAVE in the DAO treasury. While beneficial for strategic use, voting concentration can create governance imbalance unless safeguards are applied. Will these tokens be non-voting, locked, or delegated? Clarifying this now avoids governance capture risk.

→ Recommendation: Include a governance clause on the voting status of repurchased $AAVE to maintain decentralization principles.

5. Precedent for Future DAO Financial Instruments

By adopting this MicroStrategy-style debt strategy, Aave DAO sets a precedent for other DAOs exploring similar financial tools. This demands a rigorous and transparent legal framework to maintain credibility and avoid regulatory blowback not just to Aave, but to the broader DeFi ecosystem.

→ Recommendation: Publish a legal framework addendum detailing jurisdictional compliance, risk allocation, and DAO liability limitations.

This initiative, while potentially value-accretive, introduces complex legal obligations that extend beyond typical treasury diversification. It is essential that Aave DAO balances innovation with legal foresight, ensuring robust governance architecture and regulatory clarity accompany this financial evolution.

5

As a long-term investor holding AAVE for 7 years, I support this proposal, but only on the condition that no risks are involved. In particular, we need to consider whether the interest paid by AAVE DAO after entering a bear market might exceed the income of the DAO, and scientific debt stress testing is required.