CryptoSlate
Aave lenders supplying DAI on Polygon could see their share of borrower interest fall from 75% to 30% under a November 12 proposal by service provider TokenLogic. The plan raises reserve factors across 54 reserves in 12 Aave V3 instances plus Ethereum V2, redirecting more interest to the DAO treasury. TokenLogic models about $4 million in additional annualized DAO revenue using November 9 balances, including roughly $1 million from a conditional Plasma USDT0 change. For Polygon DAI specifically, the modeled supply APY drops 270 basis points.
Why it matters
The reserve factor is the portion of borrower interest allocated to the DAO instead of suppliers, and raising it changes who gets paid without touching the borrowing-rate curve. TokenLogic argues the larger treasury share better compensates the DAO for the risks attached to borrowable reserves.
The cuts are deliberately uneven. TokenLogic models reductions of 173 basis points for Avalanche DAI.e, 78 for Avalanche USDt and 61 for Avalanche USDC, and explicitly identifies Polygon DAI as a legacy reserve, using lower returns as an incentive to push liquidity out of declining markets.
Market impact
The revenue estimate holds balances and rates fixed, but the proposal is designed to change supplier behavior. On Ethereum V2, five remaining borrowed reserves would go to 99.99% reserve factors, and TokenLogic expects reduced returns to encourage exits. If suppliers withdraw, utilization rises and borrowing costs climb, putting pressure on borrowers to close positions.
Lenders in selected bitcoin-wrapper and liquid-staking collateral reserves face 100% factors but lose no more than 1 to 2 basis points, since their lending APYs are already near zero. A 100% factor applies to lending interest only, never deposit principal, and for wstETH the underlying stETH staking accrual stays intact. The publication lists feedback and escalation to the Aave Improvement Proposal stage as next steps; the yield cuts and revenue gains remain proposed estimates.
Frequently asked questions
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What is Aave's reserve factor and how does it affect lenders?
The reserve factor is the portion of borrower interest allocated to the Aave DAO instead of suppliers. Raising it redirects interest away from lenders without changing the borrowing-rate curve, lowering the supply APY lenders earn.
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How much extra revenue would the TokenLogic proposal generate for the Aave DAO?
TokenLogic estimates about $4 million in additional annualized DAO revenue using November 9 balances and rates, including roughly $1 million from a Plasma USDT0 change that remains conditional on finalized terms.
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Why would Polygon DAI lenders on Aave take the biggest yield cut?
TokenLogic proposes raising Polygon DAI's reserve factor from 25% to 70%, a modeled supply APY reduction of 270 basis points. It identifies the pool as a legacy reserve and uses lower returns to incentivize liquidity to move out of declining markets.
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Does a 100% reserve factor mean lenders lose their deposits on Aave?
No. A 100% reserve factor applies only to lending interest, never deposit principal. For wstETH, the staking accrual reflected in the token's stETH value also remains fully intact.
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What happens to Aave borrowing costs if suppliers withdraw after the cuts?
If lenders exit, utilization rises, which pushes borrowing costs up along Aave's utilization-based curve and creates pressure on borrowers to close positions. The proposal's revenue estimate holds balances fixed, so supplier exits could alter its inputs.
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