Major Update to the AAVE Ecosystem: Umbrella Module Replaces Safety Module

The AAVE ecosystem recently passed a key proposal, and the long-awaited AAVE Umbrella module has been approved by the community, set to be officially implemented on June 5, 2025. This module will replace the existing Safety Module and take 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 Issues Addressed by the Umbrella Module

The Umbrella module mainly addresses two issues present in the original Safety Module:

1. The maintenance cost is too high. Under the original model, AAVE needs to pay about $66 million in incentives each year, putting pressure on the token's market value.

2. Low capital efficiency. The original model only supported AAVE tokens and GHO-related assets, which are not highly correlated with actual lending assets, leading to inefficiencies in handling bad debts.

Main Optimizations of the Umbrella Module

1. Fund Category: Use aToken with a higher correlation to borrowing as collateral funds, with each aToken responsible only for the collateral of the corresponding underlying token. Three new assets have been added: stkwaUSDC, stkwaUSDT, and stkwaETH.

2. Incentive Distribution: The release curve model is used to determine the staking yield of each asset, influenced by three parameters: target liquidity, current total staking amount, and maximum release amount.

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

Impact on GHO Stakers

The yield for GHO stakers will decrease from around 13% to about 7.7%. Specifically:

• The GHO staking yield in the Umbrella module is approximately 0.56%.
• In the Merit module, GHO users can earn a 7.14% yield.
• The total yield is approximately 7.7%

This change may lead to a significant shrinkage in the issuance of GHO. Currently, out of a total of 238M GHO, approximately 71% (170M) is participating in stkGHO staking. The decline in yield will trigger a loss of demand until supply and demand are rebalanced.

Impact on the AAVE Ecosystem

1. Optimized the AAVE token economic model, reducing supply-side pressure.

2. Improved the capital efficiency of the protocol.

3. It may trigger the outflow of funds from the participants in the existing incentive scenario, and attention should be paid to the impact on the protocol.

4. stkGHO participants may need to explore other yield scenarios.

This update reflects the AAVE team's reassessment of the GHO development model. In the future, the team may focus more on reshaping the competitiveness of GHO based on the actual application scenarios of decentralized stablecoins.