The largest DeFi lending platform is facing a pivotal decision: the Aave DAO and Aave Labs are publicly disputing brand rights, frontend revenues, and the fundamental question of who actually owns the protocol.
The conflict highlights a central challenge for decentralized finance protocols – the structural divergence between equity value and token value accrual. Since the dispute began, the AAVE token has lost 18 percent of its value. The conflict started on December 4, 2025, when Aave Labs switched the swap provider on the frontend from ParaSwap (now Velora) to CoW Swap. On December 12, Marc Zeller of the Aave Chan Initiative revealed that the swap fees were not flowing into the DAO treasury. Instead, Aave Labs was routing the revenues – estimated at over ten million dollars annually – into its own wallet. Zeller described the move as a “covert privatization” of protocol revenues.
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Protocol versus product: the core distinction
Aave Labs defends the practice with a clear distinction: the protocol belongs to the DAO, while the frontend interface is an independent product. Founder Stani Kulechov argues that Aave Labs has independently financed, developed, and operated the interface at aave.com for more than eight years, separate from the smart contract protocol. The licensing, he says, clearly reflects this separation.
Kulechov emphasizes that fees from the former swap provider Velora – around 1.1 million dollars in 2025 – were donated to the DAO solely due to “regulatory uncertainty,” not because of any legal obligation. The claim that Aave Labs owes the DAO a fiduciary duty he calls “nonsense.” The CoW Swap adapter, he says, was developed and funded independently by the company to offer users better pricing and MEV protection.
DAO representatives see the situation very differently. Delegate Ezr3al demonstrated that the CoW Swap integration generates at least ten million dollars annually – a multiple of the previous Velora revenues of 1.1 million dollars in 2025. In addition, the DAO is losing income from flash loan fees: CoW Swap solvers use Balancer’s fee-free flash loans instead of Aave’s fee-based option. The Aave Chan Initiative characterizes the situation as a “covert privatization of roughly ten percent of potential DAO revenue using brand rights that were financed by the DAO.”
A vote without consensus escalates the dispute
On December 23, Aave Labs opened a Snapshot vote on a proposal that would transfer control over brand assets to AAVE token holders. The proposal calls for the transfer of domains such as aave.com, social media accounts, GitHub organizations, and naming rights to a DAO-controlled legal structure with “strong anti-capture protection mechanisms.”
However, the escalation to a formal vote occurred without the consent of the proposal’s author. Ernesto Boado, former CTO of Aave Labs and current co-founder of BGD Labs, stated that Aave Labs had “unilaterally and hastily submitted my proposal for a vote, with my name on it, without even informing me.” He said he would not have approved the presented version while community discussion was still ongoing. Boado described the move as “shameful” and urged token holders to abstain from the vote.
Marc Zeller characterized the action as a “hostile takeover by Labs.” What began as an effort to achieve clarity and a fairer relationship between token holders and stewards, he argued, has now turned into a power struggle. He also noted that the vote was deliberately scheduled during the Christmas period – a timing he said was intended to sabotage the process. The vote ends on December 26.
Protocol and corporate value versus token value accrual
The Aave conflict exemplifies a fundamental tension in DeFi governance structures: the divergence between protocol value and token value accrual. Aave Labs effectively operates like a traditional technology company – developing software, running infrastructure, and monetizing frontend services. The economic value of these activities, however, does not automatically flow to AAVE token holders. This structure resembles classic equity models: shareholders benefit from corporate value through dividends or price appreciation but have no direct control over operational business decisions. Aave Labs argues that precisely this autonomy is necessary to finance innovation and continue developing the product.
Token holders, by contrast, expect that value generated by the Aave ecosystem should flow back to them – either through direct fee distributions, buyback programs, or other token value accrual mechanisms. The Aave protocol itself generates substantial revenues: in the fourth quarter of 2025, revenues reached a record high of 22.56 million dollars. The DAO recently approved a permanent buyback program of 50 million dollars annually, funded by protocol revenues of around 169 million dollars per year.
Nevertheless, token holders do not directly benefit from frontend fees generated by Aave Labs through the interface. Control over brand assets, domains, and social media channels remains with Aave Labs, not the DAO. This discrepancy between on-chain governance of the protocol and off-chain control over brand and interface lies at the heart of the conflict.
Market reaction and institutional implications
Since December 16, the AAVE token has fallen 18 percent in value, making it the weakest performer among the top 100 cryptocurrencies. A large investor sold 230'000 AAVE tokens worth 38 million dollars, triggering an abrupt ten percent drop within a single day. Kulechov responded with a signal of conviction: over seven days, he accumulated a total of 84'033 AAVE tokens worth 12.6 million dollars on the open market, at an average price of 176 dollars per token.
Despite this, market confidence remains subdued. Polymarket bets show only a 25 percent probability of the proposal being approved – a decline of 26 percentage points since the beginning of the week. At the same time, the protocol itself continues to see strong capital inflows: total value locked (TVL) has risen by 1.42 billion dollars since December 18 to over 34 billion dollars. Aave thus controls around 60 percent of the DeFi lending market.
This divergence between token performance and protocol usage underscores the core problem: strong protocol fundamentals do not automatically translate into token value if the governance structure lacks clear mechanisms for value accrual.
A landmark precedent for DeFi governance
The outcome of the vote will have far-reaching implications for the entire DeFi ecosystem. If the DAO gains control over brand assets, it would establish a precedent: token governance would extend not only to smart contracts but also to off-chain assets such as domains, trademarks, and social media presences. A rejection of the proposal, on the other hand, would cement the model of functional separation: DAOs control protocols, while development teams operate and monetize independent products. This model allows for faster innovation and clear accountability but creates structural conflicts of interest between equity holders (Labs) and token holders (DAO).
The situation raises fundamental questions: can decentralized organizations effectively control commercial assets? What legal structures are required to protect token holders from “capture” by individual actors? How can incentives between developers and the community be aligned over the long term?
Parallel to the governance crisis, the US Securities and Exchange Commission announced the end of its four-year investigation into Aave – without enforcement action. This regulatory clarity theoretically creates room for constructive solutions. Whether the divided parties will use this space or whether the conflict will end in a rupture remains to be seen. The outcome is likely to shape the evolution of DeFi governance models for years to come.
