Major Update in the AAVE Ecosystem: The Umbrella Module Will Replace the Safety Module

Recently, the AAVE community passed a key proposal, and the long-prepared AAVE Umbrella module has been recognized, set to be officially implemented on June 5, 2025. This means that the AAVE Umbrella module will officially replace the existing Safety Module, taking on the bad debt guarantee function of the AAVE ecosystem. This change will have a significant impact on the revenue model of the AAVE ecosystem.

Core Problems Solved by the Umbrella Module

The launch of the Umbrella module aims to address two major issues with the Safety Module: high maintenance costs and low capital efficiency.

The Safety Module serves as a risk buffer mechanism for AAVE, providing bad debt protection for the protocol by absorbing assets such as AAVE, BPT, and GHO. However, to attract funds, AAVE needs to pay incentives of up to approximately $66 million each year, which puts immense pressure on AAVE's token economy.

In addition, the assets in the Safety Module are mismatched with the actual lending assets. When bad debts occur, it is necessary to convert AAVE-related tokens or GHO into actual lending assets, and this process may negatively affect the liquidity of AAVE and GHO.

Main Optimizations of the Umbrella Module

The Umbrella module has been optimized in three aspects:

1. Asset Category: Introduce aTokens that are highly correlated with borrowing assets, such as stkwaUSDC, stkwaUSDT, and stkwaETH, with each aToken only responsible for the collateral of the corresponding underlying token.

2. Incentive Distribution: A release curve model is used to determine the staking yield of each asset, dynamically adjusting based on target liquidity, current total staking amount, and maximum release amount.

3. Liquidation mechanism: Automatically executed by smart contracts, replacing the previously governance-dependent proactive triggering method.

Impact on GHO Stakers

The implementation of the Umbrella module will significantly impact the yield model for GHO stakers. According to the new interest rate model and current parameters, assuming all stkGHO stakers transition to the Umbrella module, the holding interest rate for users will decrease from the current approximately 13% to about 7.7%. This change may lead to a substantial shrinkage in GHO issuance.

Currently, the total amount of GHO is 238 million, of which the funds participating in stkGHO staking have reached 170 million, accounting for 71%. The significant decline in yield may lead to a loss of demand for GHO until the supply and demand relationship is rebalanced. However, given the current healthy collateralization rate of 245% for GHO, a run on the bank is unlikely to occur in the short term.

Strategic Adjustments of AAVE

From the perspective of AAVE, this update reflects a reassessment of the development strategy for GHO. Previously, the demand for GHO mainly relied on governance token subsidies, lacking sustainable actual demand support. Through this adjustment, the AAVE team may focus more on the practical application scenarios of decentralized stablecoins in payment mediums, censorship resistance, and improving the capital efficiency of lending protocols, thereby reshaping GHO's competitive advantages.

Although this signifies the end of a high-yield "gold mine," in the long run, it may be a necessary step for the AAVE ecosystem towards more sustainable development.