Written by: Nick Sawinyh, Founder of DeFiprime
Translated by: Yangz, Techub News
Aave has gone through a tough winter.
At first, it was just a dispute over trading fees—this kind of thing can be resolved on regular protocols by opening a thread on the forum—but in Aave, it eventually turned into a farce. By February 2026, the situation was: the founder voted against the brand transfer proposal, core developers announced their resignation, and the token price dropped by 40%. A full-blown war erupted between the creators of the protocol and those who theoretically owned it.
I read two long analytical pieces about this matter. They both got part of the facts right, but they also coincidentally avoided an obvious issue: the governance mechanism of DeFi might have gone wrong, and the problem is serious enough that no one is willing to admit it.
The Trigger
December 2025. Aave Labs switched ParaSwap for CoW Swap in the front-end interface. Many people thought this might just be routine maintenance, but the difference was that the fees, which originally flowed into the DAO treasury, now flowed into Aave Labs' pocket. More crucially, no one had sought opinions, and not even representatives mentioned the issue until they discovered it.
As a result, voices of opposition rose. Aave ecosystem contribution organization ACI founder Marc Zeller called this matter "unacceptable." Some even directly labeled it as theft. Consequently, the price of AAVE tokens also fell by 20%.
Conversely, Aave founder Stani Kulechov had a different interpretation: the front-end does not equal the protocol itself. The website was built by Aave Labs and is maintained by Aave Labs, so the revenue belongs to Aave Labs. The smart contracts and liquidity pools—that belongs to the DAO. The interface? That is ours.
Is this a reasonable legal distinction, or a creative interpretation of the term "decentralization"? I honestly do not know. However, the way this matter was handled is indeed terrible. You cannot claim to support decentralized governance while taking for yourself without asking. You have to choose one.
Situation Escalation
Aave protocol's core technical contributor BGD Labs proposed a proposal to transfer Aave brand assets to DAO control. This includes the domain name aave.com, Twitter account, and trademarks. Since the token holders own the protocol, the brand should also belong to them. Aave Labs pushed for the vote just before Christmas, but by then, almost everyone was offline. However, as Kulechov voted against it, the proposal ultimately failed to pass.
I can’t help but ponder this timing. It may have been unintentional, or maybe not. But if you appear to be exploiting loopholes, then you probably are. Governance relies on trust, and the public perception of this matter is very poor.
Bundled Proposal
In February 2026, Aave Labs threw out the "Aave Will Win Framework" proposal, requesting Aave DAO to provide 42.5 million stablecoins and 75,000 AAVE tokens (total value around 51 million dollars) in exchange for operating funds. In return, all front-end revenue would belong to the DAO, V4 would be established as the future architecture, and V3 would ultimately be phased out.
This sounds like a compromise, but just by noticing the bundling terms, you can find something wrong. Want the revenue to go to DAO but think the price is too high? No way. Support V3 but also want a share of front-end revenue? No chance. It's all or nothing.
This is what is referred to as a means of manufacturing consensus. Tying together what people want with what they do not want. Then, labeling those who vote against as opposing progress.
Different Positions
The first article I read desperately sought apparent balance. It said the representatives were "financially aligned," while Aave Labs was "strategically aligned." This sounds fair, but upon closer inspection, financial alignment can be measured, while strategic alignment relies solely on feelings.
Aave Labs claims V4 will be great. Maybe it will, after all, statements like "we are building the future" cannot be falsified. This is asking for trust, and trust is precisely what Aave Labs has consumed by misappropriating fees.
The second article leaned towards the DAO's position. It extensively quoted ACI's audit report—stating that Aave Labs received 86 million dollars, the return on investment was questionable, and the products in operation were unprofitable—while failing to mention that ACI itself is a service provider, and its business model relies on decentralized development. Publishing such an audit report before financing votes clearly seizes competitive position, rather than serving as a neutral analysis.
Neither article explained who actually holds AAVE tokens. There was no data on token distribution or voting patterns. Despite the term "the interests of token holders" being repeatedly mentioned, no one clarified who exactly these interests belong to.
The Real Demands of Each Party
Aave Labs needs money. The crypto venture capital market is significantly less lucrative than before, and relying on equity financing to self-blood-letting is not sustainable in the long run. That 51 million dollars is not about ambition, but about survival.
Of course, Aave Labs also wants control. Approving V4 is not just a technical decision; it relates to who will lead in the future. If the future belongs to V4, and V4 is in the hands of Aave Labs, then Aave Labs becomes indispensable. Meanwhile, BGD Labs, whose expertise lies in V3, would then be eliminated.
At the same time, the representatives want accountability, which is fair. They also want power, which is also fair. Some of them even want contracts, but pretending otherwise is less fair.
When service providers lobby for a certain decentralized development model to benefit their own business, idealism gets entangled with self-interest. There's nothing wrong with pursuing self-interest, but please do not frame it as principle.
BGD Labs will exit in April 2026. They cite reasons such as transitioning to V4, governance tensions, and antagonistic actions towards V3. The market believed them—AAVE's price promptly dropped. Zeller termed this the largest talent loss in Aave's history.
So, was BGD's exit based on principle or strategy? Stepping away from a kidnapped process is honorable. Using exit threats to create leverage is cynical. It's likely a mix of both. This is uncomfortable but very real.
Who Should the Fees Belong To?
Aave Labs says that the front-end interface is creating value. The representatives, however, argue that the front-end's importance is entirely because Aave has billions in liquidity backing it.
In my view, both statements have flaws. The front-end indeed has value. Someone has to develop it, and someone has to maintain it. But users use aave.com not because its interface is so great, but because the protocol works. Without the underlying liquidity, this website is worthless.
The real issue is actually simpler: Aave Labs made this adjustment without asking anyone. Even if they have a valid claim to the ownership of the front-end, such unilateral actions have destroyed trust. You cannot continuously claim to support decentralization while acting as though you have no need to seek anyone’s consent.
The Questions About 86 Million Dollars
ACI's audit report shows that Aave Labs has received a total of 86 million dollars over the years. Aave Labs argues that they have achieved a 60% share in the DeFi lending market.
In my opinion, this audit report combines various funds over different periods, including the ICO from 2017, venture capital investment, payments from the DAO, and those disputed fees into a total. This obscures whether those expenditures were reasonable at the time. Judging what happened in 2017 based on 2026 standards is indeed unfair.
However, the data from Horizon RWA is very revealing (even damning). Millions were spent on incentives, yielding only 216,000 dollars in revenue. If this is typical of Aave Labs' execution level, what good will it do to give them more money?
The Debate Between V4 and V3
Aave Labs wants to push V4, planning to phase out V3. BGD Labs believes V3 is the "crown jewel" that generates actual revenue. Betting on an untested new architecture while neglecting a functioning system seems risky.
I do not know which is better, nor do the representatives. However, if such technical questions are to be decided through political games, that would not bode well.
BGD's exit will worsen the situation. The most qualified individuals to evaluate V3 have just departed. Perhaps this is what Aave Labs desires—to eliminate competitors and then claim no one can maintain the old system. But perhaps BGD also exaggerated its importance. It's hard to say.
So, Who Is Right?
No side is entirely right.
On one hand, the representatives' position aligns more with the short-term economic interests of token holders. The preservation of the treasury is quantifiable. The direction of revenue is tangible. The discipline in spending is also reasonable.
On the other hand, Aave Labs' position might benefit the success of the protocol in the long run, but there are indeed many prerequisites, such as V4 being operational, trust in Aave Labs' execution capability, and centralized development outperforming governance coordination, etc.
What makes me lean towards the representatives is the issue of trust. Aave Labs took fees without permission and chose the timing of the vote to suppress participation, forcing others to agree through bundled proposals. Even if their strategy is correct, these actions indicate that they view the DAO as an obstacle rather than as a principal.
It is important to note that the cost of rebuilding trust is very high.
The Overlooked Issues
Legal Framework. Are the DAO's votes binding? Which jurisdiction's laws apply? What will enforce it? Without answers to these questions, the "power of the DAO" can only be wishful thinking.
Token Distribution. Who holds AAVE? What is the concentration? Who is voting? Without supporting data, "the interests of token holders" is just empty talk.
Competitive Context. How do Compound and MakerDAO handle these types of issues? Are there precedents for successfully transitioning from founder-led to DAO-led development?
Technical Assessment. Is V4 really better? What specific capabilities make it worth that 51 million dollars? This debate is purely political, as no one has seriously assessed the technology itself.
The Real Problem
DeFi has built intricate financial infrastructures, but the governance infrastructure is still in a primitive stage. Aave locks up billions but can’t clarify who the trading fees belong to.
This nominally DAO-voted, effectively founder-driven hybrid model works during the growth phase. But when it comes to distributing profits, it breaks down. The beautiful imagination of decentralization crashes into the reality of concentrated power.
Neither side can provide a satisfying answer for everyone. The representatives cannot coordinate the development work. Aave Labs cannot self-govern with confidence. Both sides are indispensable to the protocol but cannot reconcile.
Perhaps Aave can find a solution, or perhaps it will fork, or even fade out of people's sight. The outcome may depend on whether anyone considers institutional design more important than winning this immediate battle.
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