AAVE is the governance and utility token of the Aave protocol. It is used as a mitigation tool to insure the protocol in case of deficits.
AAVE is a mid-cap asset that represents the protocol's native governance or utility token. This asset is exposed to the underlying risks of Aave, a protocol rated as Best in Class. AAVE is the governance token of the Aave protocol, and also serves to secure the protocol by backstopping liquidity crises in the system in compensation for additional staking yield. The asset has a fixed supply.
AAVE is highly correlated to the overall market.
The AAVE token has two main uses cases: governance and securing the protocol. AAVE holders govern the future direction of the platform through community voting. Second, token holders may stake their AAVE in the security module to earn inflationary protocol emissions. In exchange, AAVE stakers bear the risk of a liquidity crisis (or referred to as shortfall events) in which their stake may be slashed up to 30%.
The total supply of AAVE is capped at 16M tokens. Of this amount, 13M were redeemed by LEND token holders and the remaining 3M were sent to the Aave Ecosystem Reserve. The Aave protocol will distribute AAVE tokens to incentivize supplying and borrowing assets across its different chain deployments.
Aave currently does not have a direct revenue accrual mechanism. Instead, AAVE token holders indirectly benefit from protocol fees generated from a portion of reserve revenue and flash loan fees which are sent to the Ecosystem Reserve. The protocol then purchases AAVE tokens from the open market and burns them to drive down supply and increase price pressure.