The AAVE ecosystem will replace the Safety Module with the Umbrella module through key proposals.

Recently, the AAVE ecosystem passed an important proposal, and the long-planned AAVE Umbrella module has gained community support, expected to be officially implemented on June 5, 2025. This module will replace the original 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:

1. Reduce maintenance costs. The original Safety Module requires an annual payment of approximately $66 million in incentives, putting pressure on AAVE's market value.

2. Improve capital efficiency. The original module only supports AAVE and GHO related assets, which have a low correlation with actual lending assets, resulting in low efficiency when handling bad debts.

The main optimizations of the Umbrella module include:

1. Introduce aTokens more relevant to borrowing as collateral assets, such as stkwaUSDC, stkwaUSDT, and stkwaETH.

2. Adopt a release curve model to determine staking yield, dynamically adjusting based on parameters such as target liquidity.

3. The automated execution of the Slashing mechanism in smart contracts no longer relies on DAO governance.

GHO Staking Yield Drops Significantly

Under the new module, the GHO staking yield is expected to decrease from 13% to around 7.7%. This may result in a significant shrinkage of GHO issuance, as currently 71% of GHO demand comes from the staking yield of the Safety Module.

However, the collateralization ratio of GHO remains at a healthy level of 245%, with a low risk of a run in the short term.

Impact on the AAVE Ecosystem

This adjustment reflects the AAVE team's re-examination of the GHO development model. In the future, AAVE may focus more on cultivating the actual demand for GHO in areas such as payments, anti-censorship, and improving lending efficiency, rather than relying on governance token subsidies.

Although this means the disappearance of a high-yield "gold mine", in the long run, it contributes to the healthy development of the AAVE ecosystem. The market will closely watch how the original participants transition and the impact this transformation has on the protocol.