Aave Latest DeFi Protocol to Delay Open Source and Lock Down V3 Code

Is the open source era in DeFi ending?

Aave, one of the top decentralized finance (DeFi) money market protocols, looks set to upgrade to version 3 under a business license that restricts use of their code for something like a year, according to a poll of AAVE holders that closed on Dec. 13. This follows on Uniswap’s decision to do the same when it introduced concentrated liquidity.

Aave founder Stani Kulechov emphasized to The Defiant via Telegram that it’s still open source, it’s just delayed. “The idea is to allow the Aave community to ensure that the protocol works as expected before going to wider use,” he said. “The Aave community can always expedite the process and also it does not affect any products that are built on top, meaning that anyone can innovate on top of the V3.”

Social Legitimacy

There’s a saying in newsrooms that three times is a trend. Right now, we’re at two — at least by our count, but when another leading DeFi protocol decides to lock down their code for a while, it could mean the beginning of the end for open source as a matter of course in blockchain development.

How long could that last, really, anyway?

“With Aave giving social legitimacy via crowd acceptance to the business source license, it feels like the end of an era,” wrote Scott Lewis, co-founder of DeFi Pulse and Hyype tweeted about the news on Monday.

“I’d say if you got to enjoy the freewheeling fun of open source DeFi, you’ll someday count yourself as lucky to have been an OG then.”

The poll closed fairly narrowly, with 388K AAVE voting for the more restrictive business license and 312K voting for one of two more open options.A large vote for the business license came in just before the vote closed, and while many scrambled to oppose it, it wasn’t enough, based on this tweet.

Gou Yeou Jie of Defiance Capital tweeted Monday in a thread about why his firm voted for the business license. “While we are strong believers of decentralisation and an open source software, our view on this proposal is to protect the interest of Aave,” he said. “We think that the Aave community should be the first to build an ecosystem around Aave V3 codebase.”

When Uniswap launched its own third version with a more restrictive business license, it was widely interpreted as a way to cement the moat made by innovative new code and prevent another incident like 2020’s vampire attack that launched SushiSwap.

More Liquidity

In 2020, SushiSwap was launched by copying all of Uniswap’s code and then giving an incentive for liquidity providers to turn their LP tokens over to SushiSwap so it could migrate Uniswap liquidity to SushiSwap. This led to a massive increase in liquidity on Uniswap.

Then SushiSwap exercised new users LP tokens, withdrawing the underlying collateral and issuing users new LP tokens on SushiSwap, all while rewarding them with the newly created SUSHI token. Strangely, after the migration occurred, there was still more liquidity left on Uniswap then there had been prior to the migration.

Adam Cochran, a partner at Cinneamhain Ventures tweeted, “When we design systems to be anti-competitive profit seekers, we’re just going to recreate the broken banking system but on-chain.”

But one developer from the Aave team took to Twitter to defend the decision to temporarily protect the code, noting that a year-long restriction is not nearly so locked-down as what’s seen in the traditional business world. Emilio Frangella, head of smart contracts for the money market protocol, tweeted, “It’s delayed open source, not against [open source] (also i’m pretty sure anyone coming to the community with a good proposal will be allowed to fork). At the same time this will maybe limit the money grabbing schemes we see everywhere.”