Origins of the Aave Governance Conflict: The Battle Over Transaction Aggregators and Revenue Attribution
In late 2025, a profound governance crisis erupted between Aave Labs, the core team behind the renowned decentralized lending protocol Aave, and the Aave DAO. The conflict was sparked in December 2025 when Aave Labs switched the transaction aggregator integrated into its frontend interface from ParaSwap to CoW Swap. This change diverted approximately $200,000 in weekly fees, amounting to $10 million annually, from the Aave DAO treasury to Aave Labs' private address. Anonymous DAO member EzR3aL quickly publicly questioned Aave Labs' move, accusing it of "privatizing" the protocol's value. Aave Labs responded by stating that the frontend interface was developed and operated by them, and therefore its revenue rightfully belonged to Labs, separate from the protocol's core smart contracts and liquidity pools managed by the DAO.
Governance Playbook: Proposals, Backlash, and Core Contributor Departures
Over the subsequent months, both sides engaged in a series of governance maneuvers centered on power and revenue attribution.
- Early Proposals and Community Backlash: In mid-December 2025, Aave Labs independently proposed a plan to transfer control of brand products to AAVE holders. However, this proposal failed to pass a vote after being criticized by the community as "silent privatization" and a "power grab." In the same month, Ernesto Boado, co-founder of BGD Labs, put forward a multi-stage token alignment proposal aimed at more clearly defining the rights of AAVE token holders. Nevertheless, Aave founder Stani Kulechov, without sufficient community consensus, pushed a community ownership proposal to a snapshot vote on December 22, 2025, triggering a strong backlash from the community.
- Departure of Core Contributor Teams: The escalating governance conflict led to the successive departures of several key contributor teams. On February 20, 2026, BGD Labs, responsible for building and maintaining the Aave V3 codebase, announced its exit, citing disagreements over the protocol's direction and concerns that the V4 upgrade pushed by Aave Labs might exacerbate centralization issues. Subsequently, on March 3, 2026, the Aave Chan Initiative (ACI), a crucial governance delegation group that had driven approximately 61% of governance actions, also announced it would gradually cease operations and withdraw. This was in protest of Aave Labs' proposed $51 million funding proposal, citing "self-voting" and a lack of transparency. In early April 2026, Chaos Labs also announced its departure due to increased workload and the exit of other contributors.
- "Aave Will Win" Proposal: During this period, Aave Labs proposed in January 2026 to redirect off-protocol fee revenue to AAVE holders and, in early February 2026, put forth the "Aave Will Win" proposal as part of its preparations for the V4 launch. The core of this proposal was DAO product revenue sharing in exchange for targeted funding for Aave Labs.
"Aave Will Win" Proposal Passes and Power Rebalancing
Despite ongoing controversy, Aave Labs' "Aave Will Win" proposal ultimately passed with an overwhelming majority in April 2026. Under this proposal, Aave Labs will receive up to approximately $51 million in stablecoins and 75,000 AAVE tokens from the DAO treasury for V4 development, marketing, and expansion. In exchange, Aave Labs committed that all future revenue from Aave-branded products would flow to the DAO treasury. This outcome has, to some extent, eased current governance tensions and provided funding for Aave V4 development, while also redefining the revenue distribution mechanism between Aave Labs and the DAO.
Market Reaction of AAVE Token
This internal governance conflict had a direct impact on the market performance of the AAVE token. In December 2025, due to governance disputes and the rejection of early proposals, the AAVE token price fell by over 10% to approximately $160. In March 2026, when ACI announced its withdrawal, the AAVE token price again dropped by over 11% within 24 hours. These price fluctuations reflected market concerns about the protocol's governance stability and decentralization. As of March 2026, Aave protocol's Total Value Locked (TVL) was close to $27 billion, while Aave DAO generated approximately $140 million in annual revenue, demonstrating the protocol's massive economic scale.
Deeper Reflection: Structural Challenges in DeFi Governance
Aave's internal conflict is not merely an internal dispute of a single protocol; it also reflects a structural misalignment that becomes apparent as the DeFi sector matures: the difficulty in reconciling equity value (commercial value created and operated by the core team) with token value (protocol ownership value represented by the DAO and token holders). Some community members believe that this conflict highlights potential centralization risks in decentralized governance, where large token holders or core teams might wield excessive influence, leading to governance decisions favoring a minority. How to balance the core team's innovation and execution with the DAO's decentralized ethos and community participation is a continuous challenge for Aave and the entire DeFi industry.
AAVE Token Trading Channels
AAVE tokens can be traded on several major cryptocurrency exchanges, including CoinUp.io, KuCoin, Binance, FameEX, BitDelta, WhiteBIT, CoinW, Bybit, BTCC, Websea, Ourbit, Toobit, OKX, and WEEX. Investors are advised to verify platform information and be aware of associated risks before trading.
The platform information for sale in the article changes with the listing and delisting dynamics of each exchange. Please refer to the official announcements of the exchanges.
