Aave Ends Rewards In Latest Blow To Yield Farmers

Aave has stopped offering incentives to Ethereum v2 users in its native token, AAVE.

At a total value-locked (TVL) of $8.57B, Aave is the third-largest DeFi protocol and the largest decentralized money market. 

Aave had incentivized adoption on its v2 deployment since April 2021 by offering AAVE tokens to those that borrowed or supplied crypto.

The rewards also let depositors continuously post borrowed assets as collateral, offsetting borrowing costs with the extra AAVE they earned.

But on May 22, the protocol’s rewards program expired on v2.

Users can still earn incentives on Aave’s v3 deployments on Avalanche and Harmony in the form of those platforms’ network tokens, AVAX and ONE. 

Harmony only rewards users that supply its native ONE token, Avalanche offers AVAX to those that supply seven out of the nine assets listed on the protocol, and to those that borrow stablecoins.

Aave has shown no interest in launching a new rewards program for v2.

For now, Aave’s main rival, Ethereum-based money market Compound, continues to offer COMP rewards to its users. But Compound’s community is divided on whether to continue distributing incentives. 

In March, the Compound community voted to slash rewards by 50% to prevent opportunistic yield farmers from harvesting all the rewards. The proposal’s author, Tyler Loewen, emphasized that “an overwhelming amount of the COMP rewards are being farmed and instantly sold off.”

Compound’s community blames the inflationary incentive scheme for COMP’s poor price performance. The token has crashed 93.2% from its peak of $910 last May. AAVE is also down 85% since its May 2021 high of $662.

In April, Loewen proposed abandoning rewards entirely for the time being as part of a four-phase plan to redesign the interest rates offered by its pools and incentive program. He suggested that COMP should only be distributed to kickstart new markets launched on the platform for the first three months after they go live.

The proposal to completely scrap rewards was narrowly voted down by the Compound community, receiving nearly 500,000 votes against the proposal compared to 492,678 in favor. Critics argued that the removal of rewards would significantly weaken Compound’s competitiveness and drive capital toward its competitors.

Aave is currently the fourth-largest protocol on Ethereum with a TVL of $7.64B, while Compound ranks seventh with $4.08B.