6.8 KiB
title, date, draft, description, status, tags, external_url, image, banner, author
| title | date | draft | description | status | tags | external_url | image | banner | author | ||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Aave | 2026-04-14 | false | A decentralized lending protocol that transitioned to DAO governance but has faced centralization tensions as founding entities retain control over key infrastructure. | ongoing |
|
https://aave.com/ | /img/logos/aave.png | /img/banners/aave.png | Tara Merk |
Summary
Aave is a decentralized lending protocol that transitioned to community governance in 2020 via token-based voting. While initially successful, recent tensions between the DAO and Aave Labs over revenue control and brand ownership reveal how decentralization remains fragile -- especially when founding teams retain control of key infrastructure like frontends, IP, and communication channels.
Motivation and Readiness
Aave has always aimed to be decentralized and already promised to move to DAO governance in the ETHLend whitepaper. As such, progressive decentralization has been part of the project’s strategy since inception. In terms of readiness, Aave had been in development for over three years before granting its community governance rights via the Aave token. By this time, it had already established itself as a leading decentralized lending protocol. Furthermore, Aave’s transition towards community governance needs to be understood in terms of its temporal context: the launch of Aave Governance V2 came amongst a boom of DAO transitions within the DeFi space at the time. As such, the transition can also be understood as a move to keep up with competitors as well as maintain the project’s attractiveness and legitimacy vis-a-vis the blockchain ecosystem and its users.
Process and Tensions
The process of transitioning to Aave Governance v2 went relatively smoothly at the time. The project also incentivized Aave users to stake their tokens to the project’s security module, by rewarding them with more Aave (and thus voting power) for doing so. As such, the transition towards decentralized governance directly contributed to the protocol’s security. Two years after the transition, Aave began entering the cross-chain decentralized lending space. To accommodate for the added complexity of governing a multi-chain ecosystem, the DAO adopted Aave Governance V3 in 2023.
Tensions arose in late 2025, as the DAO and Aave Labs began renegotiating power arrangements between them publicly. The tension began over protocol revenues from decentralized exchanges being funnelled to Aave Labs, rather than the DAO. Aave has long integrated with decentralized exchanges, to allow users to swap different cryptocurrencies on Aave without leaving the application. Previously, this integration was done with ParaSwap, a specific decentralized exchange, which in return for Aave sending new customers its way, sent a portion of the fees it took per swap back to the Aave DAO. In early December 2025, Aave Labs announced a new partnership with CowSwap, who would be the new main decentralized exchange users would access when using Aave through the frontend application maintained by Aave Labs. Following this switch, the DAO quickly realized that it meant that referral fees (likely around $10 million per year) were now flowing to wallets controlled by Aave Labs, rather than the DAO treasury. This unilateral move by Aave Labs triggered a more widespread (and very heated!) debate within the community concerning the relationship between Aave Labs and the DAO. Several proposals were made by the DAO to transfer ownership over the project's IP and communications channels to the DAOs which could then contract Aave Labs with maintaining these assets. In turn Aave Labs argued that anyone was welcome to build a competing frontend to the protocol, and that these fees were generated by a product built on Aave, rather than the protocol itself and that Aave Labs therefor had the right to take these fees, which it proposed sharing with the DAO.
Nevertheless, following this episode, debates over ownership and control between the DAO and Aave Labs are ongoing in the ecosystem. Discontent was especially high, when Aave Labs pushed a proposal for the transfer of brand assets to the DAO, to a vote over the Christmas days and seemingly coordinated its own token holders to vote against it. The role of Stani Kulechov, who remains Aave Labs’ CEO and recently published his own vision on how Aave will win in the long term (which does not make mention of decentralized governance and focuses on products instead), is especially contested. In the aftermath, several key DAO service providers have decided to leave the project.
Results
Although Aave Labs seems to have been successful in living up to its mission to decentralize the protocol over the first few years after activating V2 governance, the recent events show that decentralization remains vulnerable. It is vulnerable in the sense that the current setup still allowed Aave Labs to unilaterally re-route funds to its own address, and that the community lacks adequate enforcement mechanisms to prevent such behaviour from individual actors.
Aave’s E2C outcome is also vulnerable in the sense that tensions triggered core service providers to exit, leaving the ecosystem dependent on single vendors (like Aave Labs) or more vulnerable to technical exploits. Three months after the conflict between Aave DAO and Aave Labs emerged, the Aave Chan Initiative (ACI), a key governance group inside the DAO resigned. Shortly after, BDG Labs, a developer firm working on Aave v3 also stepped away from the protocol and Chaos Labs, a risk service provider followed. It remains to be seen, to what extent Aave’s journey towards decentralization can be characterized as being successful or unsuccessful.