In an unexpected yet remarkable turn of events, AAVE, the intrinsic token of the decentralized finance (DeFi) platform Aave, has experienced an astonishing 45% price surge, catapulting its value to $135 within a mere four-week span. This impressive ascent has outpaced every other top 100 cryptocurrency, including the market stalwarts, Bitcoin (BTC) and Ether (ETH).

The fervor surrounding AAVE has been so intense that Helium’s HNT token, with a 26% increase, trails significantly behind, as per data from Coingecko.

The Genesis of AAVE’s Rally: Fee Switch Proposal

AAVE’s price rally was ignited in late July, following a pivotal proposal by Marc Zeller, the architect behind the Aave-Chan Initiative. Zeller introduced a “fee switch” proposition aimed at redistributing a portion of the platform’s surplus revenue to key stakeholders within the ecosystem, as well as repurchasing tokens from the secondary market.

Joshua de Vos, the research lead at CCData, a London-based digital assets data and index provider, commented on this development: “Speculation is rife that AAVE might activate their ‘fee switch’ to channel excess revenue towards stakers. This is subsequent to a governance proposal that explored the protocol’s potential to buy back tokens using surplus revenue and distribute them to AAVE stakers and GHO stablecoin minters.”

This proposal has injected a wave of optimism into the market, with the potential introduction of new incentives for holding and staking AAVE. Vos added, “This has significantly bolstered market sentiment surrounding the project.”

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The Umbrella Proposal: Easing Sell-Side Pressures

Another critical proposal under consideration is the replacement of the current “seize and sell” loan liquidation process, which has adversely impacted AAVE’s price, with a “seize and burn” mechanism involving AAVE’s GHO stablecoin and aTokens, which represent assets deposited in the protocol.

Katie Talati, head of research at Arca, shed light on this so-called Umbrella proposal: “The proposal aims to establish a novel system called Umbrella, which would utilize a diversified pool of assets to cover ‘bad debt’ within the protocol—where a position is liquidated, and the collateral fails to meet the liquidation costs—instead of solely relying on the AAVE token to address bad debt. This new system would, therefore, alleviate some of the sell pressure on AAVE.”

The Web3 agency Deelabs further elaborated on X (formerly Twitter) that these buybacks are expected to create sustained bullish momentum in the market, while the Umbrella mechanism would mitigate the negative impact on AAVE’s price during loan liquidations. Deelabs noted, “This is just the beginning. There is much more to this proposal.”

Institutional Interest and Market Dynamics

These strategic proposals, aimed at restructuring AAVE’s tokenomics and bolstering the protocol’s risk management framework, have captured the attention of institutional investors. Wintermute, an algorithmic trading firm, highlighted the growing institutional interest: “The discussion around the tokenomics update brought renewed focus on the protocol back in July, and AAVE is widely recognized as a ‘blue-chip’ DeFi asset that mirrors the broader growth trajectory of the crypto market. Moreover, substantial funds have been allocated, and detailed research notes have been prepared for investors.”

Wintermute also noted an increase in over-the-counter (OTC) transactions involving AAVE, driven by institutional parties seeking exposure to the token. “We’ve observed similar OTC flows from institutional counterparts wanting to gain exposure,” Wintermute added.

Aave’s Revenue Leadership

Further solidifying its position, Aave has emerged as the leading protocol in terms of revenue and fees generated over the past four weeks. Data from TokenTerminal reveals that Aave has amassed over $27 million in fees, outshining other lending and borrowing protocols.

Given this robust performance, a growing segment of the crypto community believes that AAVE is undervalued, despite its recent price surge.

As AAVE continues to gain momentum, the token’s future trajectory will likely be influenced by the outcomes of these proposals and the broader market’s response. Whether AAVE can sustain this upward trajectory or face volatility remains to be seen, but its recent performance has undoubtedly set a new standard in the DeFi space.