The star DeFi protocol, Aave, is embroiled in an internal war over the management of its governance, pitting its DAO against the leaders of the Aave Labs structure. This conflict is symptomatic of decentralized finance and could well set a precedent in the sector.
Aave DAO vs. Aave Labs: Governance conflict within DeFi
Within decentralized finance (DeFi), the Aave protocol has emerged as a key player with its lending and borrowing system, to the point of becoming one of the most profitable with a total value locked (TVL) estimated at $33.5 billion and “real recurring revenue at the protocol level” generated by its DAO.
This seemingly positive situation could well be its worst problem at the moment, as a conflict has arisen between this decentralized entity composed of AAVE token holders and the centralized structure in charge of developing its interface and products, Aave Labs.
At issue is the diversion of swap fees to Aave Labs following the selection of DEX CoWSwap as the default aggregator on Aave.com. This represents an estimated annual loss of $10 million for the Aave DAO, described as “stealth privatization” by Aave Chan Initiative founder Marc Zeller.
To put it simply, the DAO is the engine, while the brand assets and distribution channels are the storefront and signage. The problem is not limited to the existence of private companies. Private companies can and should build products. The problem starts when a private player unilaterally controls the storefront and signage, while it is the DAO ecosystem that keeps the engine running.
Marc Zeller
Who really owns the Aave protocol?
Because, as the numerous reactions have shown, the problem is no longer limited to the CoWSwap affair, but rather to the question of who really owns the Aave protocol.
This is all the more true when we consider, as Marc Zeller explains, that “most of the day-to-day execution was carried out by the DAO’s ecosystem of service providers,” not as simple “maintenance,” but in the form of “active, cumulative growth in market share and revenue generation.”
At the same time, the situation is escalating to the point where successive proposals are being made for the seizure of Aave’s trademarks, domains, and social media accounts by its DAO.
Faced with this situation, Aave Labs attempted to respond on December 23 by hastily proposing a vote on a “brand seizure” proposal that would transfer these powers (brand assets, domains, social media accounts, naming rights, and GitHub) to Aave’s DAO, which its author—the former CTO of Aave Labs, known by the pseudonym Ernesto—did not even approve.
It was not my intention to submit the vote while the community was still having a healthy discussion on the subject, with valuable points continuously emerging. This breaks all codes of trust with the community. Public governance must remain open to discussion, even if it is sometimes difficult. Attempting to rush a vote is shameful.
Ernesto
AAVE token decline: the real community response?
How can a community vote be applied in a crisis context where new opinions on the subject are constantly emerging? Especially in a rushed manner, when we know that this power can be influenced by a large delegation of tokens. Suffice to say that the recent purchases of AAVE tokens by the founder of the Aave protocol, Stani Kulechov, identified by the X Lookonchain account, are likely to fuel the debate on this subject even further.
Meanwhile, the focus of these negotiations is now shifting to the operating model of the Aave protocol, based on a dual token/equity structure that is considered “fundamentally inoperative” due to the joint—but not necessarily cooperative—involvement of the DAO and Aave Labs. This is a key issue within the DeFi ecosystem.
And while the Aave community is in turmoil, the AAVE token has seen a significant drop of almost 20% over the last few days, making it one of the worst performers in the current top 100 over this period, even though it is at the top of the current trends.
Could this ultimately be one of the only real pieces of data to consider in order to find a quick, community-based solution to this debate?
