By
Temitope Olatunji
April 18th, 2024
The Aave liquidity mining program is aimed at growing the lending and borrowing activity in various targeted markets.
Over the weekend, the Aave Improvement Proposal (AIP) 16 officially surpassed the quorum to introduce liquidity mining to the Aave Protocol from Monday, April 26, and possibly end it in mid-July. The Aave liquidity mining program is aimed at growing the lending and borrowing activity in various targeted markets.
“Aave community has for and against views on the topic previously, against mainly because Aave Protocol has been successful in organic growth. However, since now liquidity mining network effects are proven to work, it gives an opportunity to experiment it in Aave and that might be grounds for the swing,” Aave co-founder Stani Kulechov told Cointelegraph.
According to metrics provided by Defi pulse, Aave protocol is the third in the lending category with a $6.33 billion total value locked. Maker and Compound were leading with $9.57 billion and $8.93 billion respectively. The total amount of locked assets in the decentralized financial ecosystem was approximately $58.6 billion.
Aave Protocol and the Liquidity Mining Program
Notably, Aave protocol intends to implement the liquidity mining program in a bid to overhaul other lending platforms in different markets. Approximately 62% of the participants voted for the liquidity mining program at close time. Notably, the program was proposed as a beta test to further investigate how liquidity mining rewards can benefit the Aave protocol. According to the company, the amount of AAVE tokens to be distributed will result in approximately 5% of the fully diluted yearly supply. “This enables Aave to experiment with liquidity mining rewards while saving the majority of the ecosystem reserves for other growth incentives and grants. If this AIP passes, the Aave community can reflect on the total supply/borrow and utilization by market to further refine the distribution program,” the company noted.
The move is likely to help the company decentralize the AAVE token by putting it in many hands, thus ensuring organic growth. With the borrowing demand expected to determine the distribution rate, the company has set the initial distribution rate at 2,200 units of stkAAVE per day. According to the company, markets with higher dollar value borrowed will receive a higher share of the daily stkAAVE rewards. Notably, the company has set a 50:50 ratio of the available stkAAVE per day between lenders and borrowers across the stablecoin market. Otherwise, WBTC and ETH markets will entail a 95:5 ratio between lenders and borrowers to discourage riskier borrowing activities.
The company has set out the timeline for staking and redeeming the stake for the program. “stkAAVE requires a 10 day cooldown period. The cooldown period must be started before LPs can unstake their AAVE. After the cooldown period, users have a 2-day window to unstake,” the company indicated through its website.