The Aave governance crisis
Who owns the value created around a decentralized protocol: the team building the product or the community governing it?
This article is adapted from a video series by Tally CEO & Co-founder, Dennison Bertram. Watch the Part 1, 2, and 3 on X.
Who owns the value created around a decentralized protocol: the team building the product or the community governing it? In December 2025, that became a $10 million question for Aave, and the answer may reshape how every major crypto project thinks about the relationship between their core team and their DAO.
What happened
Aave is one of the largest lending protocols in DeFi, with around $34 billion in total value locked. It’s been around since 2017 and is governed by a DAO where token holders vote on protocol changes and treasury spending. Aave Labs, the company founded by Stani Kulechov, is the primary developer and runs the main front end at aave.com.
On December 4th, Aave Labs announced a partnership with CowSwap to power swaps on the Aave interface. Better MEV protection, improved execution. It sounded like a straightforward upgrade.
A week later, a delegate named Ezreal published an investigation. What he found raised serious questions.
Aave’s interface has had swap functionality for years, previously powered by ParaSwap with a referral program where any surplus from trades would flow to the DAO treasury. That was about $200,000 to $250,000 per quarter, roughly a million dollars a year.
With the new CowSwap integration, Ezreal discovered swap fees were now flowing to a different address, not the DAO treasury, but one controlled by Aave Labs. He traced the transactions and estimated the DAO could be missing out on $10 million or more annually under the new fee structure. There was no governance vote, no announcement. The community found out through on-chain forensics.
Important context
The Aave protocol generates around $112 million in annual revenue from its core operations: borrowing fees, liquidations, flash loans. That’s what token holders control through governance, and that remains untouched. The swap fees are separate.
This isn’t existential to Aave token value. But it surfaced something bigger: a fundamental ambiguity about who owns what, and where the protocol ends and the product begins.
The DAO’s concerns
The community raised several issues, and they weren’t just about money.
Process. The DAO found out after the fact. No heads-up, no forum post. Delegates who thought they were paying attention had no idea.
Brand. The DAO paid for Aave’s visual identity. Users go to aave.com because they trust the protocol. When Aave Labs monetizes features using that brand, built on that trust, who’s really capturing the value?
Contribution history. Some swap contracts were actually built by BGD Labs, a DAO-funded service provider. The ParaSwap adapter, for example, was BGD’s work. Other teams contributed pull requests believing they were building for the DAO.
Mark Zeller from the ACI put it this way: “It seems we have been fooled in considering this a natural alignment.”
Competition. CowSwap solvers frequently use Balancer’s flash loans, which are fee-free, instead of Aave’s. The DAO is potentially losing twice: swap fees and flash loan revenue.
Precedent. If this can happen with swaps, what about vaults for v4? What about the new liquidation engine? Mark Zeller explicitly asked whether it’s safe to expect another large DAO revenue stream will be lost in favor of Aave Labs. That’s the fear. Not that this one change is catastrophic, but that it’s the beginning of a pattern.
Aave Labs’ perspective
Aave Labs isn’t some random bad actor. They built Aave from nothing and have been shipping for eight years.
Stani responded directly. His framing: the old ParaSwap setup created occasional surplus, and that surplus was donated to the treasury. Note that word. Donated, not shared, not owed.
He said on Twitter: “This was never a fee switch. It’s been a surplus always that we’ve donated to the DAO.” In the forum, he wrote that it could have been refunded to users or gone to Aave Labs, given it’s not a protocol-related feature, just swaps on the Aave Labs application.
He’s making a philosophical argument worth considering: the DAO should fund protocol development, not application development. These are separate things. If the DAO funds the main interface, it creates barriers for other builders. Less competition means less innovation.
Stani makes a good point. If Aave Labs succeeds, others will build products too and scale the protocol. That’s what actually matters for token holders: growth and revenue over time.
There’s also a harder question the community needs to wrestle with: can DAOs actually ship competitive products? Every product decision becomes a governance proposal. Every pivot requires token holder consensus. Fast-moving opportunities can die in forum threads while competitors execute. If Aave had been governed purely as a DAO from day one, would it have survived?
The thing that makes Aave valuable, the security, the user experience, eight years of continuous improvement, was built by a team with startup-level autonomy, not built by committee.
Running a production DeFi interface is genuinely expensive. Front-end engineers, back end, DevOps, security audits, 24/7 monitoring. Aave Labs has been eating that cost for eight years without asking the DAO to pay. Their position: they’d rather monetize optional features than become dependent on DAO grants.
The token alignment proposal
On December 16th, Ernesto Boado, former CTO of Aave Labs and now co-founder of BGD Labs, published what he called the most important proposal in Aave’s history. The title: “Aave Token Alignment: Phase 1 Ownership.”
The ask was straightforward. Transfer control of Aave’s brand assets to the DAO. That means the domains (aave.com, app.aave.com), the social accounts (X, Discord, Instagram), the GitHub organizations, the NPM packages, the trademarks. All of it.
These assets would move to a DAO-controlled legal entity with anti-capture protections. Critically, Boado proposed a license-back arrangement: Aave Labs could continue using everything under terms defined by the DAO.
His argument was about moving from implicit to explicit. For years, the community operated under an assumption of alignment between Aave Labs and token holders, but assumptions aren’t governance. Boado’s point: no matter how good the current stewards are, relying on implicit understanding isn’t healthy for the long-term value of the token.
He framed this as a neutral question. If you hold Aave tokens, shouldn’t you want Aave to own Aave? If the answer is yes, vote yes. If you think there’s some reason token holders shouldn’t control the brand, make that argument.
Boado gave his own company as an example. BGD Labs was created in 2022 and has been a major development contributor since then. “But that did not give us any legitimacy to be called Aave, or to promote ourselves as Aave. We are an important contributor to the Aave DAO, we are generously compensated, and that’s it.”
He called the lack of clear ownership an existential threat to the DAO model. His logic: if one party can control brand, marketing channels, gateways, and the Aave attribution, then all other contributors become subordinate to that party. There’s no longer neutral ground to contribute to a common good. That’s not a DAO. That’s a company with governance theater attached.
The timing
The timing of Boado’s proposal was striking. Hours earlier, the SEC had announced it was closing its four-year investigation into Aave with no enforcement action recommended. Stani posted on X: “DeFi will win.”
For about five hours, that was the story. Aave escapes the SEC, victory for decentralized finance. Then Boado dropped the proposal.
Whether it was opportunistic or just coincidental, publishing the proposal at the exact moment the SEC news broke meant the community had to process both simultaneously. The regulatory cloud lifted and the governance storm arrived on the same day.
Mark Zeller’s expanded argument
Mark Zeller published a detailed post that reframed the entire debate. His core claim: the DAO, not Aave Labs, has been the primary operational driver of Aave for the past several years.
He points to a timeline. Around 2021-2022, the company then known as Aave Companies rebranded to Avara, a neutral name that reduced direct association with the protocol. During that period, focus shifted to other ventures, most notably Lens Protocol.
Meanwhile, a network of independent service providers stepped up to carry execution. Chaos Labs and Lama Risk handled risk management. BGD Labs did technical stewardship. Token Logic and ACI drove integrations and ecosystem growth.
Zeller lists specific wins attributed to this DAO ecosystem: the Etherfi and LRT integrations, Aave Prime, Ethena, Pendle, BTC-Fi expansion, Plasma becoming the second-largest Aave deployment, the MetaMask and Rabby wallet integrations, Kraken, OKX, and more.
His point: if you’re using Aave today, there’s a good chance the collateral markets, risk parameters, and incentive programs you’re interacting with were designed and maintained by DAO service providers, not by Avara.
He also notes that several key contributors from the original Aave team, including the former CTO, core front-end developers, and engineers, have left Avara and now work on the DAO side through independent entities. “The genesis talent,” as he put it, “is largely building for the DAO now.”
His proposed solution: ownership should sit with a DAO-controlled vehicle. Management can be delegated back to Avara under clear and enforceable terms, but the default should be DAO ownership, not private control with informal expectations.
Stani’s response
Stani has been active throughout. His position has been consistent.
The front-end interface is a product, not a protocol component. Aave Labs built it, maintains it, secures it, and operates it. The DAO has never paid for it. Therefore, Aave Labs has discretion over how to run and monetize it.
On the historical ParaSwap arrangement, he’s been clear: that was a surplus donation, not an entitlement. When trade execution beat the quoted price, the excess got donated. It wasn’t a committed revenue share.
He pushes back on claims of fiduciary duty, calling them “nonsense.” In his view, Aave Labs is an independent company that happens to be deeply aligned with Aave’s success, but that alignment is voluntary, not obligatory.
To demonstrate that alignment, Kulechov purchased around 84,000 Aave tokens on the open market, somewhere between $10 and $12 million worth. He posted a simple tweet: “Aave aligned.”
On the same day Boado published the ownership proposal, Kulechov released an ambitious master plan for Aave’s future: scaling to a trillion-dollar ecosystem through three pillars. Aave v4’s unified liquidity architecture, Horizon’s expansion into institutional real-world assets, and the Aave app targeting a million users. The message: “We’re not extracting value, we’re building the future. Trust the vision.”
The December 22nd breakdown
On December 22nd, Aave Labs unilaterally moved Boado’s proposal to a Snapshot vote without telling Boado, without his consent.
Kulechov announced it on X: “The recent DAO alignment proposal has been moved to snapshot after extensive discussion. We realize the community is very interested in a path forward and is ready to make a decision.”
Voting would run December 23rd through 26th. Over Christmas.
Boado’s response was immediate and furious. He wrote: “To be very clear, this is not my proposal. Aave Labs has unilaterally submitted my proposal to vote in a rush with my name on it and without notifying me at all. If asked, I would not have approved it.”
He called the action disgraceful and said it breaks all codes of trust with the community. He recommended token holders abstain from what he viewed as an illegitimate process.
Stani’s response: anyone can push a proposal to Snapshot. The governance framework allows it. But the community saw this differently. Pushing a proposal without the author’s knowledge, during the holidays, while simultaneously voting against it, felt like an attempt to kill it procedurally rather than engage with it substantively.
To make matters more tense, Aave Labs voted against the proposal using their delegation. At one point, they controlled enough voting power to single-handedly decide the outcome.
By December 23rd, the Aave token had dropped roughly 18% from its recent highs. Some of that was broader market movement, but the timing suggested governance uncertainty was a factor.
What Aave Labs gets right
Running a production DeFi interface is expensive. No one else has stepped up to do it. The DAO has never offered to fund front-end development. Labs asking to monetize their own work isn’t unreasonable.
Governance overhead is real. The prospect of every product decision becoming a forum debate, every moving opportunity dying in a forum thread, is a real problem. Aave’s success over eight years happened precisely because a tight-knit team could move fast.
Stani and Avara Labs’ ability to be a face and interface to the wider traditional finance industry is a huge advantage. It’s a superpower of the DAO.
The front end was built and maintained by Aave Labs without DAO funding. Saying “we want to control something we never paid for” is a complicated ask. The sustainability argument matters. If Labs can’t monetize the interface, who pays for it? Either the DAO subsidizes it, which creates its own problems, or it doesn’t get built. There is no free lunch.
What the DAO side gets right
The brand value wasn’t created by Aave Labs alone. The trust that makes aave.com valuable comes from years of the protocol not getting hacked, which was maintained by DAO-funded security work. The integrations that bring users came from DAO service providers. Liquidity came from DAO-approved incentive programs.
When you’ve operated under implicit expectations for years, changing those expectations without discussion feels like a breach, even if there never was a formal agreement.
And the procedural concerns are legitimate. Pushing someone else’s proposal to vote without their consent over a holiday weekend, then voting against it yourself, erodes trust regardless of whether it technically follows the rules.
The real issue
The fundamental problem isn’t that anyone is acting in bad faith. Everyone involved loves Aave. The problem is that no one ever defined the relationship.
What does it mean to own Aave? What claims does it give you on the brand, the front end, the integrations, the future products? These questions were never answered. There were just vibes, implicit understanding, trust.
Implicit understanding works great until there’s real money on the table. Then you discover that different people had different implicit understandings all along.
Stani thinks he built a product and the DAO should be grateful for what he’s donated. The DAO thinks they funded an ecosystem and Aave Labs should acknowledge that dependency. Both are partially right. Neither is completely right.
The vagueness isn’t neutral. It’s actively destructive. When value capture is unclear, it creates zero-sum dynamics. Every decision becomes a battle over who’s extracting from whom. Energy that could go toward building goes instead toward fighting.
And it creates genuine uncertainty for token holders. If you don’t know what you own, how do you value it? If the boundaries can shift based on whoever has more leverage at any given moment, what’s the token actually worth?
This is the core issue that needs resolving, not just for Aave, but for every protocol that’s tried to have it both ways. You can’t be decentralized when it’s convenient and centralized when it’s profitable. Or rather, you can try, but eventually the contradiction catches up with you.
Lessons for everyone
For founding teams: define the relationship early. The time to decide what’s protocol versus product is before there’s millions on the line. Write it down, get it ratified. If you’re going to monetize the interface, say so from day one. If you’re donating surplus, clarify it’s a donation, not a commitment.
Communicate before, not after. Even if you have the right to make a change, announce it and be transparent. The trust damage from surprise often exceeds the actual impact.
Take decentralization seriously or don’t claim it. The worst outcome is saying you’re decentralized and then acting like you’re not. Either commit to community ownership with all the constraints that implies, or be honest that you’re building a company with a token attached.
Build value into the protocol, not just the product. If your protocol generates real revenue that flows to token holders, the community will be more patient. If all the value accrues to your company while the token does nothing, expect conflict.
Plan for succession. Eventually, you might want to step back, or the community might ask you to. Clear ownership structures make that transition possible without destroying the project. The goal is to build something that can outlive your involvement. That’s what decentralization is actually for.
For DAOs: don’t rely on goodwill. If a revenue stream matters, formalize it. Put it in governance proposals, make it contractual. “They’ve always done it this way” is hope, not strategy, and hope isn’t enforceable.
For the industry: we need better frameworks. Standard templates for service provider agreements, clear definitions of IP ownership and monetization rights. Boring legal stuff that separates sustainable organizations from ticking time bombs.
The broader lesson
This crisis matters beyond Aave because it tests the fundamental premise of protocol governance.
DAOs were supposed to give communities control over things that matter. But it turns out the things that matter, brands, domains, user relationships, front-end experience, often live outside the smart contracts. And the entities that control those off-chain assets have leverage that governance tokens can’t easily overcome.
This contradiction is the unfinished business of decentralization. The industry figured out how to put lending logic on chain. It didn’t figure out how to put brand ownership on chain. It created governance tokens that control protocol parameters but never defined what else those tokens should control.
Every protocol that has a founding company, a foundation, a labs entity, which is basically all of them, is going to face some version of this question eventually. The ones that answer it proactively, with clear agreements and explicit boundaries, will avoid what Aave is going through. The ones that rely on goodwill and implicit understanding won’t.
The vagueness isn’t protecting anyone. It’s just deferring conflict until the stakes are high enough that the conflict becomes expensive.
Where this goes
Aave is still the dominant lending protocol. $34 billion plus in TVL, 60% market share, $150 million in annual protocol revenue. The fundamentals are rock solid. But governance is fracturing in real time.
The current Snapshot vote will likely fail. Boado himself is urging people not to participate in what he sees as an illegitimate process. If it fails, he’s indicated he’ll come back with a revised proposal, one with proper community discussion, longer deliberation, and his actual consent to the timeline.
Most likely, what we’ll see are attempts at compromise: phased approaches with long deliberation periods, formalized revenue sharing mechanisms, clear licensing agreements for brand usage. But the trust damage is real, and trust is hard to rebuild through governance proposals.
Aave will survive this. It’s too big and too important not to. But the relationship between Aave Labs and the DAO will never be the same. And that’s probably the point.
The projects that will thrive will face this honestly, have hard conversations early, put agreements in writing, and build governance that can evolve. The projects that will fail will assume alignment, rely on goodwill, and discover too late that vibes are not a governance framework.
If you’re building something decentralized, take note. The ambiguity you leave unresolved today becomes the conflict you’re forced to resolve tomorrow, at much greater stakes. And by then, it’ll be a lot more expensive.
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