Aave's fee switch proposal sparks major rally in AAVE token

On Thursday, July 25, Marc Zeller, the founder of one of the top independent organizations providing services for Aave DAO, published a temperature check for a new Aave governance proposal that would lead to a “fee switch.” 

Among the various components, the proposal's “buy & distribute” program, which would use the protocol’s fee revenue to acquire or “buy back” AAVE on the secondary market, garnered significant attention. Following the release of this “temp check,” AAVE's market capitalization rose by 10% within two hours and has since increased by a further 5%, adding $188 million to its market cap.

It's worth noting the sharp increase in AAVE’s market cap coincided with a similarly sharp increase in the price of bitcoin and the overall market during this time, with BTC rising nearly 2% in the two hours following the publication of the Aave “temp check.”

However, AAVE has nevertheless outperformed the broader market, indicating that the “temp check” played a major role in making AAVE one of the market’s best-performing tokens over the past two days.

Despite this bullish price performance, Aave’s underlying protocol metrics, such as its outstanding debts or Total Value Locked (TVL), were not significantly affected. For example, Aave had $13.02 billion in TVL at the time of the “temp check” publication and has seen only a negligible sub-1% movement to $12.91 billion in TVL over the following two days.

This lack of impact on the protocol's metrics is to be expected, as a temperature check for a governance proposal does not affect the protocol’s actual mechanisms. Rather, the enthusiastic price movements of the AAVE token are more reflective of the market’s anticipation and optimism about the potential implementation of the proposal.

This is an excerpt from The Block's Data & Insights newsletter. Dig into the numbers making up the industry’s most thought-provoking trends.