The Aave Protocol uses a Smart Contract-based component known as the Safety Module (SM) as collateral of last resort for staked AAVE. We lock the tokens into the Smart Contract through the incentivization of AAVE holders to use the Safety Module (SM). The locked AAVE will be used as a mitigation tool in case of a Shortfall Event in the money markets that belong to the AAVE ecosystem.

AAVE's Safety Module includes a built-in mechanism to prevent excessive flow of AAVE into the open market, which would further reduce the value of AAVE.

Participants chose to lock AAVE into the SM knowing that they would be exposed to a potentially catastrophic Shortfall Event in exchange for receiving rewards, such as Safety Incentives (SI) and fee distributions.

To contribute to the safety of the protocol and receive incentives, AAVE holders will deposit their tokens into the SM. In return, they will receive a tokenized position that can be freely moved within the underlying network. The holder of the tokenized position can redeem their share from the SM at any time, triggering a cooldown period of one week.

SI rewards are subject to a cooldown period where tokens are unclaimable. The cooldown period is set to seven days. However, fees generated by the protocol are continuously allocated to the users participating in the SM and will be redistributed to the SI participants.

The main role of the Safety Module is to protect the protocol against unexpected loss of funds occurring due to:

Smart contract risk such as bug, design flaw or potential attack surfaces on the smart contract layer.

Liquidation risk such as failure of an asset that is being used as collateral on Aave; risk of liquidators not capturing liquidation opportunities in a timely manner, or low market liquidity of the principal asset to be repaid.

Oracle failure risk like Oracle system not properly updating the prices in case of extreme market downturn and network congestion; risk of the Oracle system not properly submitting prices, causing improper liquidations.

References:

1. https://docs.aave.com/aavenomics/safety-module
2. https://docs.aave.com/developers/v/1.0/developing-on-aave/the-protocol/safety-module-stkaave

Users with locked liquidity in the Safety Module will still be able to vote on that matter using their tokenized version of their locked assets. Conceptually, AAVE holders participating in the SM will have to vote to safeguard the integrity of the protocol.

What is Aave's Safety module (SM)?

Below graph shows the Total volume of Staked Aave transactions traded over the past one year on Ethereum network

Here is the graph that shows the Total number of Staked Aave transactions traded over the past one year on Ethereum network.

Below is the Balance amount available for Staked Aave user addresses over the past one year on Ethereum network.

Here is the Staked Aave Token price trend over the past one year on Ethereum blockchain network.

This graph shows the Total amount trend of Staked Aave transactions on Ethereum blockchain over the past 1 year, on a weekly basis.

Тotal value locked (TVL) represents the number of assets that are currently being staked in a specific protocol.. This graph shows the Total Locked Value(TVL) trend of Staked Aave transactions on Ethereum blockchain over the past 1 year, on a weekly basis.