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TokenLogic submitted a proposal to Aave Governance on November 12 that would adjust the reserve factors for 54 different assets. The plan aims to increase the protocol’s annual treasury revenue by an estimated $3.5 million. The submission covers 12 V3 instances as well as the V2 Ethereum market. Governance has not yet approved the changes.
More coverage is filed under DeFi.
Reserve Factor Mechanics
The reserve factor determines the percentage of borrowing interest that accrues to the Aave treasury. This parameter is set for each individual asset through governance. The Aave treasury is controlled by Aave Governance. When the reserve factor increases, the treasury’s share of the interest grows, while the share allocated to liquidity suppliers decreases.
To illustrate the mechanism, consider a hypothetical scenario where a borrower pays $100 in interest. If the initial reserve factor is 20%, the treasury receives $20 and the suppliers receive $80. If the reserve factor is raised to 25%, the treasury’s share increases to $25, reducing the supplier’s share to $75. The proposal does not alter the interest rate paid by borrowers, but it does change how that interest is distributed between the protocol and its suppliers.
Proposed Parameter Changes
The model behind the proposal uses balances and interest rates from a data snapshot dated November 9. It calculates that the blended reserve factor across the targeted assets would rise from 12.0% to 12.7%. TokenLogic proposes specific adjustments for high-volume assets to reflect the evolving structure of the protocol.
For Ethereum Core DAI, the proposal moves the factor from 25% to 30%. For Avalanche V3 USDC, the factor would jump from 10% to 25%. These changes are part of a broader effort to adjust incentives across legacy markets as newer infrastructure develops. Aave V4 launched on Ethereum in March and on Avalanche in July. The V4 architecture groups liquidity into hubs and separates lending activity into distinct spokes. The proposal targets the older V3 and V2 markets where the current parameters were set.
Payward, which has a recently disclosed investment in AAVE, is not directly involved in the proposal’s creation, but the timing of the submission coincides with the maturation of the V4 network. The next steps for the proposal involve gathering community feedback and submitting an onchain proposal for a vote.
