Major Changes in the AAVE Ecosystem: The Umbrella Module Will Soon Replace the Safety Module

The AAVE ecosystem recently passed a key proposal, and the long-awaited AAVE Umbrella module has been approved by the community and will be officially implemented on June 5, 2025. This means that the AAVE Umbrella module will replace the existing Safety Module and assume the bad debt guarantee function of the AAVE ecosystem. This move will significantly impact the revenue model of the AAVE ecosystem.

The core issues addressed by the Umbrella module

The Umbrella module aims to address the two major issues present in the Safety Module:

1. Maintenance costs are too high. Based on the current interest rate level, AAVE needs to pay about $66 million in incentives each year, which puts pressure on AAVE's market value maintenance.

2. Low capital efficiency. The Safety Module mainly relies on AAVE and GHO related assets, but AAVE, as a blue-chip lending protocol, faces primary risks from blue-chip assets like USDT and ETH. This asset mismatch reduces the efficiency of capital utilization.

To this end, the Umbrella module has made three optimizations:

1. Change the fund category to aToken, which is more relevant to borrowing; each aToken is responsible only for the collateral of the corresponding underlying token.

2. The incentive distribution adopts a release curve model, dynamically adjusting based on target liquidity, current total staking amount, and maximum release amount.

3. The slashing mechanism is automatically executed by smart contracts, no longer relying on DAO governance to trigger.

GHO Staking Yield Has Decreased Significantly

In the new Umbrella module, the GHO risk compensation yield will significantly decrease. Assuming that all current stkGHO stakers switch to the Umbrella module, the user-held interest rate will drop from around 13% to about 7.7%.

This change may lead to a significant shrinkage in the issuance of GHO. Currently, about 71% of the total GHO is participating in stkGHO staking, and a decrease in yield will trigger a loss of demand until supply and demand are rebalanced. However, since the current collateralization rate of GHO exceeds 245%, the risk of a run on the market is low in the short term.

For AAVE, this is a reassessment of the GHO development model. In the future, AAVE may focus more on the application of GHO in practical scenarios such as payment medium, censorship resistance, and improving the capital efficiency of lending protocols, in order to reshape GHO's competitiveness.

This transformation marks a significant shift in the yield model of the AAVE ecosystem, and the existing high-yield stablecoin staking model may come to an end. Participants in the AAVE ecosystem need to closely monitor the impact of this change and adjust their investment strategies accordingly.