Original Title: Who Owns 'Aave': Aave Labs vs Aave DAO
Original Author: Ignas, Crypto KOL
Original Compilation: Felix, PANews
Recently, Aave Labs and Aave DAO engaged in a debate over the fee distribution issues surrounding the CoWSwap integration, which the community views as a potential crisis in DeFi governance. The author of this article interprets this debate from a neutral perspective, and the following are the content details.
On December 4, the lending protocol Aave Labs migrated its front-end interface aave.com's default exchange integration from ParaSwap to CoWSwap. This may seem like just a minor product update, but it actually exposes a long-standing deep-seated contradiction within Aave.
This conflict is not about CowSwap, fees, or even user experience, but rather about ownership. That is, who controls Aave, who decides the allocation, and who captures the value created around the protocol.
In the old setup, the exchange function primarily served to retain users:
Users can restructure or exchange assets without leaving the Aave interface. Importantly, all referral fees or positive slippage surplus fees are redistributed as revenue to the Aave DAO treasury.
CowSwap's integration changed this situation.
According to Aave documentation, exchanges now charge about 15 to 25 basis points. Orbit, representing EzR3aL (note: a senior governance participant and independent delegate of Aave DAO), investigated the destination of these fees and concluded that these fees no longer enter the DAO treasury but instead flow into an address controlled by Aave Labs.
“Assuming only $200,000 is transferred weekly, the DAO would lose at least $10 million a year.” — EzR3aL
Did Aave Labs unilaterally cut off the DAO's revenue source and transfer it to a private company?
Aave has been able to operate smoothly over the years because, although the division of responsibilities is blurred, the interests of all parties remain aligned.
· DAO Governance Protocol
· Aave Labs builds the frontend interface.
Most funds flow in the same direction, so no one really cares about the definition issues.
And now this coordination of understanding seems to have broken down.
As Aave founder and CEO Stani.eth wrote:
· "At that time, Aave Labs decided to donate to Aave DAO in those cases (these funds could also be returned to users)."
Aave Labs' response: "The protocol and products are different concepts."
Response from Aave Labs on the forum:
· "The frontend interface is operated by Aave Labs, completely independent of the protocol and DAO management."
· "The frontend interface is a product, not a component of the protocol."
From their perspective, this is normal. Running the frontend requires funding, security requires funding, and support also requires funding.
The surplus from Paraswap flowing to the DAO is not a permanent rule. There are no precedents to follow.
ACI (the service provider for Aave DAO) and its founder Marc Zeller believe this is a fiduciary responsibility issue.
"Every service provider on the Aave DAO payroll has a mandatory fiduciary duty to the DAO, thereby responsible for the maximum benefit of AAVE token holders." — Marc Zeller's comment on the forum.
He believes there is an understanding: the DAO lends its brand and intellectual property, and the profits from the frontend should also belong to the DAO. "It seems we have been kept in the dark, thinking this was a given."
Marc Zeller also claimed that the DAO lost revenue, and routing decisions might push trading volume towards competitors, resulting in Aave DAO losing about 10% of its potential revenue.
Protocol and Products
Aave Labs has drawn a clear line between the protocol and products.
The DAO governs the protocol and its on-chain economy. Aave Labs operates the frontend interface as an independent product with its own philosophy.
As explained by Aave's founder in this tweet:
· The frontend interface of Aave Labs is a product completely based on our own philosophy that we have developed for over 8 years, similar to other interfaces that utilize the Aave protocol, such as DeFi Saver.
· It is also perfectly reasonable for Aave Labs to profit from its products, especially since it does not touch the protocol itself, and given the ByBit security vulnerability incident, this ensures secure access to the protocol.
Aave DAO does not own intellectual property because the DAO is not a legal entity and cannot hold trademarks or enforce trademark rights in court.
The DAO governs the smart contracts and on-chain parameters of the Aave protocol but does not manage the brand itself.
However, the DAO has been granted the right to use the Aave brand and visual identity for purposes related to the protocol. Past governance proposals have explicitly granted the DAO broad rights to use the visual identity for the benefit of the Aave protocol, Aave ecosystem, and Aave DAO.
Source: Aave
As EzR3aL said:
“The reason this fee is feasible is that the Aave brand is well-known and accepted in the ecosystem. This is the brand that the Aave DAO pays for.”
The value of the Aave brand does not come from a logo.
Its value comes from:
· The DAO cautiously manages risk.
· Token holders bear the protocol risks.
· The DAO pays fees to service providers.
· The DAO has survived multiple crises without collapsing.
· The protocol has earned a reputation for being secure and reliable.
This is what EzR3aL referred to as "the brand that the DAO pays for."
Not in a legal sense, but in an economic sense, where funds, governance, risks, and time have been invested.
Does this sound familiar?
This brings us back to the similar issues between Uniswap Labs and the foundation regarding Uniswap frontend fees. Ultimately, Uniswap readjusted the rights of equity and token holders, completely removing frontend fees.
This is why the equity/DAO dynamic can cause harm (this is what I found from the TG group chat).
The content of the above image is as follows:
“Equity issued a type of token and allocated these tokens to itself and others. If the DAO generates profits, Equity can earn profits through its share of tokens held in the DAO.
· "But Equity does not bear the losses of the product; those losses are borne by the DAO."
· Equity does not manage risk; risk management is the responsibility of the DAO.
Users do not interact directly with the 'contract', but rather with specific implementation versions that have specific risk parameters and liquidity tied to that specific implementation.
If Equity wants to gain additional benefits beyond the profits generated from the tokens it initially minted and allocated to itself, everyone agrees it can completely develop an independent product to serve users, just like DeFi Saver is an independent product that charges for its unique services.
Access to a product should not be restricted to a single frontend.
As of the time of writing, the only point of agreement with critics acknowledged by Aave Labs is in communication.
· "The real criticism here is communication. Or rather, the lack of communication."
Things were already complicated, and now it's worse.
Aave Labs has proposed Horizon as an exclusive RWA instance.
Initially, this proposal included something that immediately alerted the DAO: a new token with diminishing profit shares.
Representatives of various factions strongly opposed (including the author) the introduction of an independent token, arguing that it would dilute the value proposition of AAVE and undermine consistency.
The DAO ultimately won, and Aave Labs was forced to concede. The new token plan has been canceled.
But this has led to greater divisions.
Despite many concerns (one of which explicitly points out the clear responsibilities between Aave Labs and the DAO), Horizon has still gone live. This is the most contentious vote that has won.
I voted against the deployment, advocating for a friendly agreement to prevent future conflicts from escalating. And that is the current situation. Economic issues quickly became the focus of contention.
According to data cited by Marc Zeller, so far, Horizon has generated about $100,000 in total revenue, while Aave DAO has invested $500,000 in incentive funds, leaving its net asset value at approximately -$400,000.
Moreover, this does not account for other factors.
Marc also pointed out that tens of millions of GHO were injected into Horizon, but its returns were lower than the costs required to maintain the GHO pegged price.
If these opportunity costs are taken into account, the true economic situation of the DAO might be worse.
This prompted ACI to raise a question that goes beyond Horizon itself:
If a project funded by the DAO is directly economically ineffective, is that the whole truth?
Or, are there additional benefits, integration fees, or off-chain arrangements that token holders are not aware of?
Over the years, multiple deployments and plans proposed by various Labs have ultimately led to the DAO's costs exceeding its revenues.
A few days after Aave Labs proposed a DAO proposal to deploy Aave V3 on MegaETH, related discussions immediately began.
In return, "Aave Labs will receive 30 million points from MegaETH."
Then, "these points may be distributed as incentives in the Aave V3 MegaETH market according to the Aave DAO's GTM strategy."
The problem is that when a product is operated by private entities using assets supported by DAO, transparency is crucial, and it must be ensured that incentives are distributed as agreed.
Source: Aave
Another reason this proposal was surprising is:
Aave DAO has been collaborating with multiple service providers, especially ACI, since March to propose deployment on MegaETH. Related discussions are still ongoing.
Source: Aave
As Marc commented on the forum:
“During the discussions, we were very surprised to find that Aave Labs decided to bypass all precedents, abandon all ongoing progress, and directly contact MegaETH. We only learned about this when the proposal was published on the forum.”
Treasury
Another part of this debate relates to the Aave treasury.
The Aave treasury is an application-level product built and funded by Aave Labs. Technically, they are ERC-4626 treasury wrappers built on the Aave protocol, abstracting position management for users.
Stani explained this very clearly:
“The Aave treasury is simply a 4626 treasury wrapper built and funded by Aave Labs.”
From Aave Labs' perspective, this should not be a source of controversy.
The treasury is not a component of the protocol. They do not affect the profitability of the protocol.
They are optional, and users can always interact directly with the Aave market or use third-party treasuries.
· "For Aave V4, this treasury is not necessary... Users can interact directly with Aave V4 through Hubs."
And since the treasury is a product, Aave Labs believes they have the right to profit from it.
· "It is perfectly fine for Aave Labs to profit from its products, especially since they do not involve the protocol itself."
So why would the treasury be involved in this fight?
The reason lies in the distribution channels.
If the treasury becomes the default user experience for Aave V4, then a Labs-owned product carrying the Aave brand could become a bridge between users and the protocol, charging transaction fees while relying on the reputation, liquidity, and trust accumulated by the DAO.
Despite the increase in adoption of Aave products, the AAVE token is still affected.
To reiterate, the author believes this issue falls within the same category as the debate between Uniswap Labs and the foundation regarding frontend products.
In summary, CowSwap, Horizon, MegaETH, and Aave Vaults all face the same issue.
Aave Labs sees itself as an independent builder operating a product with subjective opinions on top of a neutral protocol.
The DAO increasingly believes that the protocol's value is being monetized outside its direct control.
Aave DAO does not own intellectual property, but it has been granted the right to use the Aave brand and visual identity for purposes related to the protocol.
This debate is crucial as the upcoming Aave v4 version is explicitly aimed at shifting complexity from the user side to the abstract layer.
More routing, more automation, and more products located between users and the core protocol.
More abstraction means more control over user experience, and control over user experience is key to value creation/extraction.
This article strives to remain neutral. However, it still hopes to reach a consensus on the value capture concerning $AAVE token holders.
The author hopes that the consensus achieved will not only benefit Aave itself but also because Aave has set an important precedent for how equity and tokens can coexist.
Uniswap Labs has completed this process and ultimately made the outcome favorable for $UNI holders.
Aave should do the same.
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