Olivia Capozzalo & Denis Omelchenko
February 26, 2026

gm, Defiers!

Today’s big story:

Over the past weeks, the most successful coalition in DeFi has come under strain as a governance proposal from Aave Labs faces backlash from the DAO

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Ethereum Foundation outlines long-term ‘strawmap’
ZachXBT accuses Axiom team of insider trading
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TICKER	VALUE	24H
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Today’s Big Story

The DAO That Won DeFi Is Now at War With Itself

In a sector full of foundations that operate like companies and DAOs that exist mostly on paper, Aave is unusual.

There is no single operating company that controls product, governance, risk, and brand. Instead, Aave is the product of a decentralized coalition:

Aave Labs is where Stani Kulechov, Aave’s co-founder and most visible face, sits. Labs develops the Aave user interface (website and app), built part of v3, is building v4 and drives strategy and ecosystem growth.
Aave Chan Initiative, or ACI, led by Marc Zeller, focuses on revenue generation, incentives, asset onboarding, governance coordination, and partnerships.
BGD Labs improved and maintained v3, as well as the protocol’s risk and governance engines.
Chaos Labs manages risk.
TokenLogic handles treasury and leads on BD.
The Aave DAO funds all these teams with its treasury of more than $150 million equivalent across assets.

That structure is messy. It is also the reason Aave has grown into DeFi’s largest lending protocol, with roughly $27 billion in total value locked and about $100 million in annualized protocol revenue, according to DeFiLlama.

Over the past weeks, the most successful coalition in DeFi has come under strain. BGD already left as a result of the heightened tensions, and there is currently a governance proposal that will change the structure of the coalition being voted on.

A Quick Recap of How We Got Here

Dec. 11: A governance thread titled “Aave CowSwap Integration – Tokenholder Questions” questioned that a CoW Swap integration on Aave’s interface collects 15–25 bps in swap fees that don’t go to the Aave DAO treasury (unlike the prior Paraswap referral model), and that Aave Labs implemented this fee change unilaterally without clear governance approval, effectively redirecting what could be millions in revenue away from the DAO.
Dec. 16: The CowSwap fee incident highlighted the Aave DAO's weak position relative to Aave Labs, which owns the Aave brand assets. As a response, BGD co-founder Ernesto Boado submitted a governance proposal arguing that AAVE token holders should formally gain ownership and control of Aave’s brand assets through a DAO-controlled legal vehicle.
Feb. 12: Aave Labs proposed a temp check titled “Aave Will Win Framework.” The proposal outlined structural changes, including routing 100% of protocol revenue to the DAO, clarifying that a foundation would own Aave’s IP, and streamlining execution to make Aave more competitive.

The direction received broad support in principle. Delegates and tokenholders largely agreed that consolidating revenue to the DAO and clarifying IP ownership strengthened the protocol’s long-term positioning.

However, prominent tokenholders and commentators, including Zeller, Ignas, and representatives from Multicoin Capital, publicly requested specific amendments. These included a petition to unbundle the main points under discussion into separate approvals, greater transparency on how the ~$51M will be spent, an accountability report, and a clearer definition of what 100% of revenue actually means.

Feb. 20: BGD Labs posted “BGD. Leaving Aave.” BGD has been responsible for major contract upgrades, technical architecture, and security work over multiple versions of Aave. Their departure marked the first major contributor exit during the dispute.
Feb. 24: Aave Labs published a detailed contributions report, outlining its role since 2017 as the team that invented ETHLend, rebuilt it into Aave, and then designed, built, and shipped Aave V1, V2, V3, foundational innovations like Flash Loans, the Safety Module, eMode, and GHO, the native stablecoin that has generated revenue for the DAO. The team emphasized its work on the Aave.com frontend, brand identity, Aave Arc, the Aave App, and Horizon RWA initiative, plus marketing, community events, 24/7 security operations, extensive audits, and ongoing support for the core protocol and front end.
Feb. 25: A forum post by ACI titled “Aave Labs – 8.6M (23% of the token supply) and this is their track record” escalated the debate. The post claims Aave Labs has received ~$86 million in total capital since 2017, including ICO proceeds, VC funding, direct DAO payments, and swap fees, and still holds ~23 % of the token supply, raising questions about whether it has delivered proportional value to the DAO.

It argues that Labs built the early protocol (V1–V3.0), but subsequent revenue-generating upgrades and ongoing contributions have mostly come from DAO service providers like BGD, not Labs.

The post asserts that stand-alone products outside the core protocol have largely failed or been unprofitable, with Horizon’s revenue vastly outweighed by costs (“~$24 spent for every $1 earned”), and criticizes the lack of financial transparency and accountability reporting from Labs.

The Credit Debate Misses the Bigger Risk

Some governance participants have argued that BGD and other technical contributors built the majority of Aave’s core infrastructure. That claim may be accurate in terms of lines of code and contract design.

Others point to Aave Labs’ role in strategic expansion, institutional relationships, and proposal direction that shaped Aave’s revenue model and ecosystem.

Quantifying which entity contributed what percentage of Aave’s success is tempting. It is also a distraction.

I posted on X:

The way I see this, Aave is a result of all its parts.

Like a cake, you can argue it's 80% flour, 20% eggs, 10% sugar, 5% butter, 1% baking powder, but take away any of its components, and there's no cake.

Right now, each side is entrenching into their positions, bashing each other, not accepting feedback or criticism, for the sake of winning?

The only way to keep making the Aave cake is with all its ingredients. Aave wins when all sides are cooking together.

Aave’s differentiation in DeFi is precisely that it is not a single vertically integrated entity. It is a coalition. Each part has a different function.

The “Aave Will Win” framework is already aligned around key principles that most stakeholders support: 100% of revenue to the DAO and IP owned by a foundation structure.

Several tokenholders requested specific guardrails. Those concessions would not have undermined the framework’s direction. Incorporating them could have reduced friction while preserving strategic momentum.

The Market is Speaking

Markets hate risk.

Since the Dec. 11 Cow Swap fees post, AAVE is down 43%, underperforming ETH. At the same time, Morpho, a smaller lending protocol with materially lower TVL than Aave, now trades at a higher fully diluted valuation.

That relative pricing suggests investors are discounting uncertainty around Aave’s internal cohesion.

Aave’s strength has always been that independent builders, service providers, and tokenholders could coordinate at scale without collapsing into a centralized corporate structure. That model requires mutual respect.

In the cake analogy, BGD’s exit removes one major ingredient, which will need to be replaced (by a new participant or current participants will have to pick up the slack). Further fragmentation increases execution risk at a time when competition among lending protocols is intensifying, and capital remains mobile.

Aave became DeFi’s flagship lending protocol because its parts worked together long enough to compound. Preserving that coalition is more valuable than winning an argument about historical credit.

With love,

Cami, founder at The Defiant

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🎬WATCH

Why DAO Governance Always Turns Political

In this episode of The Defiant Podcast, Cami sits down with Rune Christensen to discuss why DAO governance becomes a struggle for resources, how the "iron law of bureaucracy" emerges, and why Sky redesigned its architecture to survive it.

Watch the full interview: