Important proposal for the AAVE ecosystem passed, the Umbrella module is about to replace the Safety Module

Recently, the AAVE ecosystem passed a key proposal, and the long-awaited AAVE Umbrella module has received community approval, scheduled for official implementation on June 5, 2025. This means that the AAVE Umbrella module will replace the original Safety Module, taking on the bad debt guarantee function for the AAVE ecosystem. This move will bring significant changes to the revenue model of the AAVE ecosystem and is worth the market's attention.

The Core Objective of the Umbrella Module

The AAVE Umbrella module aims to address two main issues:

1. Reduce maintenance costs
2. Improve Capital Efficiency

In the existing Safety Module, AAVE needs to pay an incentive cost of about $66 million annually, which puts pressure on the maintenance of AAVE's market value. Additionally, since the fund pool only contains AAVE tokens and GHO-related assets, it is necessary to convert these assets into other tokens when dealing with bad debts, which reduces the efficiency of fund utilization.

Major Improvements of the Umbrella Module

1. Fund category: Introduce aTokens highly related to borrowing assets, such as stkwaUSDC, stkwaUSDT, and stkwaETH, replacing the original AAVE tokens and GHO related 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 proactive triggering mechanism that relied on DAO governance.

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, assuming all stkGHO stakers fully switch to the Umbrella module, the holding rate for users will decrease from the current 13% to about 7.7%. This change may lead to a substantial shrinkage in the issuance of GHO, as the current demand for GHO mainly comes from the staking rewards of stkGHO in the Safety Module.

However, the collateralization ratio of GHO currently exceeds 245%, which is at a healthy level, so there is no need to overly worry about the risk of a bank run in the short term.

Impact on the AAVE Ecosystem

This adjustment reflects the AAVE team's reassessment of the GHO development model. Previously, the demand for GHO primarily relied on governance token subsidies, which lacked sustainability. With the introduction of the Umbrella module, the AAVE team may focus more on the competitiveness of decentralized stablecoins in practical application scenarios such as payment media, censorship resistance, and improving the capital efficiency of lending protocols.

Although this change may signify the disappearance of a popular high-yield opportunity, in the long run, it may help the AAVE ecosystem establish a healthier and more sustainable development model. Market participants should closely monitor the impacts of this change and adjust their investment strategies accordingly.