Price decline, massive whales dumping and leaving the market—A look at the DeFi governance dilemma through the battle for control of Aave

Author: Jae, PANews

When the governance benchmark of the DeFi market collides with real-world commercial interests, a brutal game of “who is the master” is unfolding inside the top lending protocol Aave.

As the leader in the DeFi market, Aave manages approximately $34 billion in assets and is regarded as a model of on-chain governance. However, in December 2025, Aave found itself in its most severe trust crisis in its 8-year history.

This controversy was not accidental. The spark initially was a seemingly minor front-end fee distribution, but it unexpectedly triggered a domino effect. Under the catalysis of a series of key events, it ultimately pushed the lending giant Aave into the spotlight.

This is not just a simple dispute over profit sharing; it has torn open a gap, exposing the most fundamental and sensitive conflict in the DeFi space: under the narrative of decentralization, who truly has the authority—the founding team holding the code and brand, or the DAO community holding governance tokens?

This is not only a crisis for Aave but also raises an urgent question for the entire DeFi market: as protocols mature, how can the development team’s commercial incentives be balanced with the governance rights of token holders?

10 million USD “disappears,” Aave Labs accused of depriving community rights

The origin of the Aave governance internal conflict began with an update on technical optimization.

On December 4, 2025, Aave Labs announced replacing its official front-end (app.aave.com) asset swap service provider from ParaSwap to CoWSwap, citing better prices and MEV resistance.

However, the subsequent financial changes were not fully disclosed in the announcement. Community representative EzR3aL tracked on-chain data and found that after the fee redistribution, the fees generated from user transactions no longer flowed into the DAO’s public treasury but were transferred to an address controlled by Labs. Based on historical data estimates, this lost annualized revenue could reach up to $10 million.

Aave community leader Marc Zeller pointed out: this is a form of covert privatization of brand assets. Labs uses DAO-funded technology development and brand value to profit for itself, breaking the long-standing trust tacit agreement.

Aave founder Stani Kulechov believes: this is a division between protocol and product. He explained that the Aave protocol built on smart contracts belongs to the DAO, while the front-end app at app.aave.com, which incurs high operational and maintenance costs, should have its commercial rights belong to the builders, Labs. The fees previously flowing to the DAO were just “voluntary donations.” This view challenges the traditional understanding of the DeFi community—that tokens should capture all economic value generated by the protocol ecosystem.

Stani’s logic, in the eyes of the community, is no different from a sovereignty deprivation. As the most important user entry point and traffic gate, if its revenue can be unilaterally intercepted by Labs, will future projects like Aave V4, GHO stablecoin, and Horizon RWA face similar revenue interception? Under such circumstances, the value capture promise carried by governance token AAVE might become a mere empty check.

Internal conflict intensifies, DAO proposal aims to reclaim brand ownership

When gentle negotiations fail to reach consensus, the radical faction of the community begins to adopt extreme game strategies. On December 15, a governance proposal called the “Poison Pill Plan” was proposed by user tulipking, with three highly aggressive demands:

2. Asset transfer by force: Require Labs to unconditionally transfer all code repositories, intellectual property (IP), and trademarks to the DAO, or face legal action.
3. Equity confiscation and subsidiary formation: Assert that the DAO should acquire 100% equity of Labs, transforming the original independent company into a wholly owned subsidiary of the DAO, with founders and employees becoming DAO employees.
4. Recoup past revenues: Seek to recover all front-end historical revenues generated from using the Aave brand from Labs and return them to the treasury.

Although this heavy bomb was temporarily shelved due to procedural issues, its deterrent intent has been achieved, indicating that the community has the ability and willingness to use governance votes to reverse-absorb the development team that refuses cooperation.

Under the shadow of this extreme proposal, Aave’s former CTO Ernesto Boado proposed a more constructive “Phase One - Ownership” plan, signaling a sovereignty recovery action: reclaim domains like aave.com; regain control of official social media accounts such as X and Discord; and take back control of GitHub repositories.

Boado stated plainly that, true decentralization must include the decentralization of “soft assets.” He proposed establishing a legally controlled entity governed by the DAO to hold these brand assets, thereby gaining recourse within traditional legal jurisdictions. This marks a move for the DAO to evolve from a loose on-chain voting organization into a “digital sovereignty entity” with actual legal definitions and assets.

Token price drops, whales cut losses and exit, Labs unilaterally pushing votes causes dissatisfaction

As governance descends into internal strife, the secondary market begins to vote with their feet. Although the $34 billion assets locked in the protocol have shown no obvious fluctuations, the AAVE token price, which is directly related to the interests of token holders, has continued to decline by over 25% within two weeks.

On December 22, the second-largest holder of AAVE sold off, having accumulated 230,000 AAVE tokens at an average price of around $223, but liquidated at about $165 amid governance chaos, with an estimated paper loss of up to $13.45 million. The whale’s departure is a negative signal about Aave’s current governance chaos and a deep skepticism about its future value capture ability: if profits can be easily stripped, the previous valuation models of the token will also become invalid.

Adding to the woes, Labs unilaterally advanced the proposal to the Snapshot voting stage without the consent of the original author Boado, sparking strong protests from the community, with several representatives criticizing this move as a breach of normal governance procedures.

Crypto influencer 0xTodd pointed out two issues: 1) The voting period was set from December 23-26, during which many users are on holiday for Christmas, potentially reducing voter participation; 2) Currently, Boado’s proposal is still in the discussion stage, and typically, a discussion post requires 3-6 months of repeated communication and refinement before entering the voting phase.

However, Stani responded that the new ARFC proposal voting fully complies with the governance framework, and voting is the best and final way to resolve the issue. This reveals a divergence: DAO emphasizes procedural correctness, while Labs prioritizes efficiency.

But on the other hand, absolute procedural correctness can also stifle efficiency. If the commercial returns of the development team are thoroughly deprived, Labs’ motivation to push protocol V4 upgrades will significantly decline. Managing the brand through DAO, if legal disputes arise, the lack of responsible persons could hinder quick responses and even lead to the brand being directly seized by regulators.

So far, only 3% of votes are in favor, showing a one-sided situation. The community may once again enter the “proposal—vote” cycle, potentially worsening into a deadlock. In fact, Aave, stuck in governance deadlock, has already wasted a lot of time.

However, this trust crisis is most likely a phase issue and a “rite of passage” for Aave as a DeFi leader.

Many veteran DAO participants say that even the on-chain governance benchmark Aave is close to splitting, suggesting that the DAO governance model might inherently be unfeasible. Yet, the fact that such transparent, intense, and evenly matched debates can occur within Aave itself proves its high level of decentralized governance. This collective ability to correct biases is precisely the value of decentralization governance.

A more critical turning point comes from external regulation. On December 20, the US SEC concluded a four-year investigation without taking any enforcement action against Aave. This has been widely interpreted as regulatory tolerance for highly decentralized governance models like Aave.

Amid the storm, Aave’s fundamentals remain highly resilient. Founder Stani not only continues to respond to doubts, personally adding a total of $15 million worth of AAVE, enduring over $2 million in paper losses, but also announced a “Three Pillars” strategy to rebuild community consensus and trust. However, this move has also been questioned by the community, which suspects it aims to increase his voting influence. Even so, simply increasing Labs’ influence in governance remains a band-aid solution.

Governance evolution, hybrid organizations may become a path for利益重構

As the turmoil unfolds, a path for governance evolution may emerge: Aave could transform from a single on-chain protocol into a “hybrid organization.”

Returning to the latest proposal content, the model proposed by Boado essentially redefines the relationship between the two parties from three aspects.

2. DAO holds sovereignty: not only owns smart contracts but also owns brands, domain names, trademarks, and user distribution channels;
3. Labs as a professional service provider: Labs no longer profits as “owner,” but as a top-tier service provider authorized by the DAO. The fees collected by Labs at the front end should be based on DAO authorization and may need to share revenue with the DAO to cover development costs and enhance token value;
4. Contractual governance: all profit sharing is no longer based on “voluntary donations,” but on on-chain service agreements.

In fact, this controversy is highly similar to the incident in 2023 when Uniswap Labs charged front-end fees, which caused dissatisfaction among the community. Ultimately, Uniswap defined Labs’ commercialization rights and the protocol layer’s decentralization, reaching an agreement with the community.

Aave may further advance this idea by attempting to resolve the “who owns the brand” issue through the “Phase One—Ownership” proposal at its root. If the proposal passes in the future, any commercial activities by Labs will need to be authorized by the DAO at the procedural level, fundamentally ending the possibility of “covert privatization.”

Aave’s dilemma reflects a common contradiction faced by all decentralized protocols. Does the market want an efficient but potentially centralized “product,” or a decentralized but possibly less efficient “protocol”? This not only concerns the authority boundaries of governance tokens but also determines the future direction of DeFi’s evolution.

Currently, this $30+ billion DeFi experiment is at a crossroads, and its future will be gradually revealed through each on-chain vote.

_(The above content is authorized for excerpt and reprint by partner PANews. Original link: ___)

Disclaimer: This article is for market information only. All content and viewpoints are for reference only and do not constitute investment advice. They do not represent the objective views and positions of Block. Investors should make decisions and trade independently. The author and Block are not responsible for any direct or indirect losses caused by investor transactions.