Cryptocurrency-backed peer-to-peer lending platform Aave is introducing greater incentives for investors that are willing to take higher risks.
The Ethereum-based platform said that it has voted in and implemented a new improvement proposal, AIP-7, which gives investors a greater reward in exchange for introducing additional risk for their funds put into the safety module.
Previously, Aave holders could stake their Aave in the protocol’s safety module and earn safety incentives in exchange for securing the protocol. Safety incentives were set at 400 Aave per day to be distributed among all the stakers.
No stake slashing was activated during this initial phase, so Aave holders were not at risk of losing any of their stake.
However, AIP-7 has passed and activated stake slashing. This means that if there’s a shortfall event, up to 30 per cent of the Aave staked in the safety module can be slashed to cover the deficit.
Aave stakers are taking a risk to protect the protocol and are therefore rewarded with safety incentives.
AIP-7 also proposed that the safety incentives increase from 400 Aave per day to 550 Aave per day to be distributed among all stakers, so that the reward stakers get reflects the additional responsibility they have now that slashing is activated.
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“AIP-7 sets the maximum slashing amount to 30 per cent,” Aave said in a blog on its website.
“In the case of a huge shortfall event, stakers could lose up to 30 per cent of their stake to cover the deficit.
“With the introduction of slashing, stakers are taking on more responsibility and risk to secure the protocol.
“Thus, it is only natural that the “safety incentives” or rewards for stakers increase as well, from 400 Aave/day to 550 Aave/day!”
In December, Aave launched version 2 (V2) of its marketplace, replacing the previous version which was launched at the beginning of the year.