Aave

The economic model

Revenue comes from three places. The reserve factor takes a share of the interest borrowers pay in each pool, so the DAO earns a spread between the supply rate and the borrow rate rather than a fee on volume. GHO, the protocol's own overcollateralised dollar, is different: because the DAO mints it, the whole borrow rate on the $598m outstanding accrues to the treasury rather than to a depositor. Flash-loan premiums and liquidation revenue add a smaller, more cyclical third stream. DefiLlama put annualised fees at $937m against annualised protocol revenue of $124m on 25 July 2026. The gap is what depositors keep.

Risk sits with suppliers, in a defined order. The first loss layer is the deficit offset the DAO funds for each asset; the second is Umbrella, where depositors stake aTokens or GHO and are slashed pro rata when a pool's deficit exceeds that offset, with a 20-day cooldown before they can exit. Slashed assets go to the Aave Collector. The April 2026 rsETH episode showed what happens when the layers are too thin. A forged LayerZero packet released 116,500 rsETH without a matching burn on the source chain; Aave froze rsETH across all V3 deployments within 85 minutes, but the incident report modelled bad debt of $123.7m if losses were socialised uniformly and $230.1m if they were isolated to layer-2 markets, against a treasury of $181m. The residual gap after recovery efforts was roughly 75,081 ETH, closed by 25,000 ETH from the treasury, 14,570 ETH of contributions from EtherFi, Lido, Ethena, Ink, BGD Labs and named individuals, and a credit facility of up to 30,000 ETH from Mantle. Depositors were made whole by a rescue that governance negotiated, not by a contract.

AAVE has no cash-flow claim. Its holders vote, and they are the residual claimant if the protocol is recapitalised. Value has reached the token through buybacks, and the history of that programme is instructive: $1m a week from April 2025, cut from roughly $50m to $30m a year in March 2026 after borrow-fee revenue fell about 25% from its peak, then suspended in May 2026 during the fallout from the rsETH incident. Aavenomics 3.0, activated on 27 June 2026, replaced discretionary purchases with an immutable mechanism routing Aave and GHO revenue to holders without per-cycle committee sign-off. That removes the discretion that produced the pause, but it is a repurchase of shares, not a distribution: holders benefit only if they sell into it.

How it is governed

Onchain governance by the Aave DAO, in which AAVE and stkAAVE holders vote on parameter changes and code upgrades. Risk parameters and treasury operations are delegated to service providers and committees; Aave Labs and BGD Labs author most of the code the DAO ratifies.

Where it runs

Ethereum, with Aave V3 markets deployed on more than 20 other networks