Aave Governance Proposal and Market Impact

On Thursday, July 25, Marc Zeller, the founder of one of the leading independent organizations providing services for Aave, published a temperature check for a new governance proposal introducing a “fee switch.”

Among various components, the proposal’s “buy & distribute” program attracted significant attention. This program aims to utilize the protocol’s fee revenue to acquire or “buy back” AAVE on the secondary market. Following this announcement, AAVE’s market capitalization increased by 10% within two hours, followed by an additional 5% rise, adding $188 million to its market cap.

This surge in AAVE’s market cap coincided with a notable increase in the price of bitcoin, which rose nearly 2% during the same period after the proposal’s publication.

Despite the overall market’s upward trend, AAVE outperformed, showcasing that the “temp check” significantly contributed to its status as one of the market’s best-performing tokens over the subsequent two days.

However, Aave’s underlying protocol metrics, such as outstanding debts or Total Value Locked (TVL), remained largely unaffected. At the time of the “temp check” release, Aave had $13.02 billion in TVL, which saw a negligible decrease to $12.91 billion over the following days. This minimal impact was expected, as a temperature check for a governance proposal does not influence the protocol’s operational mechanisms. Instead, the price movements of the AAVE token appear to be driven by market anticipation and optimism surrounding the proposal’s potential implementation.

This is an excerpt from The Block’s Data & Insights newsletter. Dig into the numbers making up the industry’s most thought-provoking trends.