Major Changes in the AAVE Ecosystem: Umbrella Module Replaces Safety Module

The AAVE ecosystem recently passed a key proposal, and the highly anticipated AAVE Umbrella module has received community approval, set to be officially implemented on June 5, 2025. This marks the formal replacement of the original Safety Module by the AAVE Umbrella module, which will take on the bad debt guarantee function of the AAVE ecosystem. This transformation will have a significant impact on the revenue model of the AAVE ecosystem.

The Core Issues Solved by the Umbrella Module

AAVE, as a decentralized over-collateralized lending protocol, faces the main risk of bad debt issues that may arise from untimely liquidation during severe market fluctuations. Previously, AAVE primarily mitigated this risk through the Safety Module. The Safety Module is essentially a funding pool that can be utilized to cover losses in the event of bad debt within the protocol, while also providing generous incentives to the capital providers who bear the risk.

The Safety Module supports staking of three types of assets: AAVE, Balancer AAVE/wstETH liquidity pool tokens (BPT), and GHO. Staking users can earn AAVE token rewards. However, this mechanism has two main issues: high maintenance costs and low capital efficiency.

To optimize these issues, the AAVE team proposed the Umbrella module to replace the original Safety Module. The Umbrella module mainly has three improvements:

1. Fund Category: Use aToken, which is more closely related to borrowing, as collateral assets, with each aToken responsible only for the collateral of the corresponding underlying tokens.

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. Slashing Mechanism: Automatically executed by smart contracts, replacing the original actively triggered mechanism reliant on DAO governance.

Changes in GHO Staking Yield

The introduction of the Umbrella module has the most significant impact on GHO stakers. According to the new interest rate model and current parameter settings, assuming all stkGHO stakers fully switch to the Umbrella module, the holding interest rate for users will decrease from the current approximately 13% to about 7.7%. This change could lead to a significant shrinkage in the issuance of GHO, as the majority of the current demand for GHO comes from the staking rewards of stkGHO in the Safety Module.

Despite the decline in yields, the risks for GHO stakers have also correspondingly decreased, and in the future, they will only need to bear the default risk of GHO loans. For the AAVE protocol, this is a reassessment and adjustment of the GHO development model, aiming to reshape GHO's competitiveness from actual demand scenarios rather than relying on governance token subsidies to maintain demand.

This transformation undoubtedly marks an important turning point for the AAVE ecosystem, and it also signifies that a highly anticipated high-yield staking opportunity is about to disappear. Participants in the AAVE ecosystem need to closely monitor this change and adjust their investment strategies accordingly.