Token VS Equity: The Aave Controversy

By: blockbeats|2025/12/26 11:30:02

On December 17, Aave founder and CEO Stani.eth posted on social media that after four years, the U.S. Securities and Exchange Commission had completed its investigation into the Aave protocol.

This was supposed to be an inspiring milestone. However, as Web2 finished its entanglement with the SEC, Aave found itself facing a "backyard fire" in Web3 instead. Over the past half month, Aave's community governance dispute has been a hot topic in the English-speaking community. Around this dispute, there have been a series of events including whale sells, founder "buybacks," governance, and trust issues.

Let's take a look at the background of this event.

Cause: Revenue Distribution Sparks Controversy

On December 4, Aave Labs switched the default Swap feature on its front-end interface aave.com from ParaSwap to CoWSwap.

What was originally just a minor update, Aave DAO's senior governance participant and independent delegate EzR3aL discovered that the fee revenue generated by aave.com's default Swap feature was no longer flowing into the Aave DAO treasury as before but rather into an address controlled by Aave Labs. Based on on-chain investigation, EzR3aL stated that at the time of his post, the recent income transfer by Aave Labs was worth at least $200,000, with a rough estimate of at least $10 million in annual loss for Aave DAO based on the weekly revenue data.

However, Aave Labs did not proactively mention the change in fee revenue distribution, leaving many $AAVE holders feeling "betrayed."

Aave Labs responded multiple times to EzR3aL's post, with the main arguments being:

The protocol and the product are different concepts. The frontend interface that sparked the revenue distribution dispute is a product operated by Aave Labs, completely separate from the protocol managed by Aave DAO, and Aave Labs have the right to decide how to operate and profit.

Maintaining the frontend interface requires significant resources, and Aave DAO was never required to bear these costs.

In the original Paraswap-integrated technical architecture, the donation mechanism was based on surplus. When the actual execution price was higher than the quoted price, the surplus would be donated to Aave DAO. This was not a protocol fee, nor was it a mandatory requirement to give to Aave DAO. With the design changes, the original donation mechanism was naturally discontinued.

The new CoWSwap routing option can improve execution quality, including providing MEV protection for interface users, and this routing option was concocted by Aave Labs with its own resources, and it does not replace or disable the adapters owned by the Aave DAO at the protocol level, allowing the Aave DAO to let any interface integrate its owned adapters to enable swap functionality.

Contention Upgrade: Who Owns "Aave"?

Aave Labs' response to EzR3aL's post has not been understood and accepted by the community.

On December 13, @DefiIgnas published a lengthy article titled "Who Owns Aave: Aave Labs or Aave DAO?," which sparked widespread discussion.

On December 16, former Aave Labs CTO Ernesto released a governance proposal titled "$AAVE Alignment Phase 1: Ownership," advocating for Aave DAO and Aave token holders to explicitly control core rights such as protocol IP, brand, equity, and revenue. Aave service providers representative Marc Zeller and others publicly endorsed the proposal, calling it "one of the most influential proposals in Aave's governance history."

In the proposal, Ernesto mentioned, "Due to some events in the past, some previous posts and comments have shown strong animosity towards Aave Labs. However, this proposal aims to remain neutral. The proposal does not imply that Aave Labs should not contribute to the DAO or lacks the legitimacy or ability to contribute, but the decision should be made by Aave DAO."

On December 18, Aave founder and CEO Stani.eth replied to the proposal, stating that they would strengthen communication between Aave Labs and the community but would vote against the proposal because it simplifies a complex legal and operational issue into a simple "yes or no" vote without a practical solution, affecting Aave's overall development progress.

This further escalated the dispute.

Whale Sell-off, Founder's Market "Rescue"

On December 22, according to on-chain analyst yujianguo's monitoring, the whale address holding the second-largest amount of AAVE sold off 230,000 AAVE tokens (approximately $38 million), causing a short-term price drop of over 10%. The whale exchanged all AAVE for 227.8 WBTC and 5869.4 stETH between 5:40 and 7:05 a.m., reportedly acquiring these AAVE from late last year to early this year at an average cost of about $223.4. This selloff at an average price of around $165 is estimated to incur a loss of $13.45 million.

Shortly after the Whale's exit, Aave Labs announced that the issue needed formal governance decision-making and officially initiated a 3-day snapshot vote.

On December 23, Aave founder and CEO Stani.eth spent 1699 ETH (5.15 million USD) to buy 32,660 AAVE tokens at an average price of 157.78 USD. Including this purchase, he bought a total of 84,033 AAVE tokens within a week at an average price of around 176 USD, spending approximately 14.8 million USD.

However, despite the founder's "market rescue," the price turmoil continued. On December 24, the address starting with "0x3c7," known for "Large AAVE Short," opened a 7x leveraged AAVE short position with a 2.42 million USD position size at an average price of 151 USD and a liquidation price of 173 USD.

There were many doubts and concerns in the market regarding the founder's "market rescue" as well. DeFi strategist and liquidity expert Robert Mullins stated in a post that the purpose of this purchase was to increase Kulechov's voting power to support a proposal in an upcoming vote that directly harms the best interests of the token holders. He added: "This is a clear example that the token mechanism has not been adequately designed to effectively deter governance attacks."

Renowned crypto KOL Sisyphus also expressed similar concerns, suggesting that Kulechov may have sold millions of dollars worth of AAVE tokens between 2021 and 2025 and questioned the economic motives behind this buyback.

Outcome

On December 26, Wintermute's founder and CEO Evgeny Gaevoy stated that Wintermute would vote against the ARFC governance proposal to transfer the "brand asset control of AAVE to the holders."

Evgeny mentioned that the current proposal lacks specific details, and it is not clear how the entity owning the front end and brand would govern, whether it is for-profit, and how it operates. Token value capture is a core issue facing AAVE, and there is a clear mismatch in expectations between Aave Labs and a large number of token holders. Wintermute has been investing in AAVE since 2022 and has participated in its governance. Evgeny hopes that Aave Labs will address the issue of token value capture seriously, which will serve as a reference for other tokens.

The voting results were also released this morning, with the proposal ultimately not passing, resulting in 55.29% against, 41.21% abstaining, and only 3.5% in favor.

Token VS Equity: The Aave Controversy

So, is this the end of the dispute? Apparently not, as the lack of trust between the community and Aave Labs remains unresolved. What seemed to be a conflict triggered by poor communication is actually a manifestation of the long-standing contradiction in the crypto world between development/operation teams and governance, where rights and interests are unclear and lack institutional constraints. The entanglement between Aave Labs and Aave DAO actually underscores Aave's success, as there are too many similar examples in the crypto world where such high-quality discussions do not even have the opportunity to occur in an attempt to resolve issues (related reading: Why are projects in the crypto space not asking for tokens in acquisitions?).

This is the problem Aave must face, and it is a problem that the entire cryptocurrency industry will sooner or later have to confront.

Over the past 24 hours, the crypto market has shown strong momentum across multiple dimensions. The mainstream discussion has focused on Coinbase's official entry into the prediction market through the acquisition of The Clearing Company, as well as the intense controversy within the AAVE community regarding token incentives and governance rights.

In terms of ecosystem development, Solana has introduced the innovative Kora fee layer aimed at reducing user transaction costs; meanwhile, the Perp DEX competition has intensified, with the showdown between Hyperliquid and Lighter sparking widespread community discussion on the future of decentralized derivatives.

I. Mainstream Topics

1. Coinbase Acquires The Clearing Company, Officially Entering Prediction Market

This week, Coinbase announced the acquisition of The Clearing Company, marking another significant move to deepen its presence in this field after last week's announcement of launching a prediction market on its platform.

The Clearing Company's founder, Toni Gemayel, and the team will join Coinbase to jointly drive the development of the prediction market business.

Coinbase's Product Lead, Shan Aggarwal, stated that the growth of the prediction market is still in its early stages and predicts that 2026 will be the breakout year for this field.

The community has reacted positively to this, generally believing that Coinbase's entry will bring significant traffic and compliance advantages to the prediction market. However, this has also sparked discussions about the industry's competitive landscape.

Jai Bhavnani, Founder of Rivalry, commented that for startups, if their product model proves to be successful, industry giants like Coinbase have ample reason to replicate it.

This serves as a reminder to all entrepreneurs in the crypto space that they must build significant moats to withstand competition pressure from these giants.

2. Kalshi Launches Kalshi Research and Integrates BSC Network

Regulated prediction market platform Kalshi launched its research arm, Kalshi Research, this week, aimed at opening its internal data to the academic community and researchers to facilitate exploration of prediction market-related topics.

Its inaugural research report highlights Kalshi's outperformance in predicting inflation compared to Wall Street's traditional models. Kalshi co-founder Luana Lopes Lara commented that the power of prediction markets lies in the valuable data they generate, and it is now time to better utilize this data.

Meanwhile, Kalshi announced its support for the BNB Chain (BSC), allowing users to deposit and withdraw BNB and USDT via the BSC network.

This move is seen as a significant step for Kalshi to open its platform to a broader crypto user base, aiming to unlock access to the world's largest prediction market. Furthermore, Kalshi also revealed plans to host the first Prediction Market Summit in 2026 to further drive industry engagement and development.

3. AAVE Token Incentive Controversy Persists as Founders and Whales Increase Holdings Against the Market Trend

The AAVE community recently engaged in heated debates around an Aave Improvement Proposal (AIP) titled "AAVE Tokenomics Alignment Phase One - Ownership Governance," aiming to transfer ownership and control of the Aave brand from Aave Labs to Aave DAO.

Aave founder Stani Kulechov publicly stated his intention to vote against the proposal, believing it oversimplifies the complex legal and operational structure, potentially slowing down the development process of core products like Aave V4.

The community's reaction was polarized. Some criticized Stani for adopting a "double standard" in governance and questioned whether his team had siphoned off protocol revenue, while others supported his cautious stance, arguing that significant governance changes require more thorough discussion.

This controversy highlights the tension between the ideal of DAO governance in DeFi projects and the actual power held by core development teams.

Despite governance disputes putting pressure on the AAVE token price, on-chain data shows that Stani Kulechov himself has purchased millions of dollars' worth of AAVE in the past few hours.

Simultaneously, a whale address, 0xDDC4, which had been quiet for 6 months, once again spent 500 ETH (approximately $1.53 million) to purchase 9,629 AAVE tokens. Data indicates that this whale has accumulated nearly 40,000 AAVE over the past year but is currently in an unrealized loss position.

The founder and whale's increased holdings during market volatility were interpreted by some investors as a confidence signal in AAVE's long-term value.

4. Top Articles: DeFi Curators and Ethereum Annual Summary

In this week's top article, Morpho Labs' "Curator Explained" detailed the role of "curators" in DeFi.

The article likened curators to asset managers in traditional finance, who design, deploy, and manage on-chain vaults, providing users with a one-click diversified investment portfolio.

Unlike traditional fund managers, DeFi curators execute strategies automatically through non-custodial smart contracts, allowing users to maintain full control of their assets. The article offered a new perspective on the specialization and risk management in the DeFi space.

Another widely circulated article, "Ethereum 2025: From Experiment to Global Infrastructure," provided a comprehensive summary of Ethereum's development over the past year. The article noted that 2025 is a crucial year for Ethereum's transition from an experimental project to global financial infrastructure. Through the Pectra and Fusaka hard forks, Ethereum achieved significant reductions in account abstraction and transaction costs.

Furthermore, the SEC's clarification of Ethereum's "non-securities" nature and the launch of tokenized funds on the Ethereum mainnet by traditional financial giants like JPMorgan marked Ethereum's gaining recognition from mainstream institutions. The article suggested that whether it is the continued growth of DeFi, the thriving L2 ecosystem, or the integration with the AI field, Ethereum's vision as the "world computer" is gradually becoming a reality.

II. Mainstream Ecosystem Updates

1. Solana: Launches Kora Fee Layer and propAMM Data Research

The Solana Foundation engineering team released a fee layer solution called Kora this week.

Kora is a fee relayer and signatory node designed to provide the Solana ecosystem with a more flexible transaction fee payment method. Through Kora, users will be able to achieve gas-free transactions or choose to pay network fees using any stablecoin or SPL token. This innovation is seen as an important step in lowering the barrier of entry for new users and improving Solana network's availability.

Additionally, a deep research report on propAMM (proactive market maker) sparked community interest. The report's data analysis of propAMMs on Solana like HumidiFi indicated that Solana has achieved, or even surpassed, the level of transaction execution quality in traditional finance (TradFi) markets.

For example, on the SOL-USDC trading pair, HumidiFi is able to provide a highly competitive spread for large trades (0.4-1.6 bps), which is already better than the trading slippage of some mid-cap stocks in traditional markets.

Research suggests that propAMM is making the vision of the "Internet Capital Market" a reality, with Solana emerging as the prime venue for all of this to happen.

2. Perp DEX: Hyperliquid vs. Lighter Competition Intensifies

The competition in the perpetual contract DEX (Perp DEX) space is becoming increasingly heated.

In its latest official article, Hyperliquid has positioned its emerging competitor, Lighter, alongside centralized exchanges like Binance, referring to it as a platform utilizing a centralized sequencer. Hyperliquid emphasizes its transparency advantage of being "fully on-chain, operated by a validator network, and with no hidden state."

The community widely interprets this as Hyperliquid declaring "war" on Lighter. The technical differences between the two platforms have also become a focal point of discussion: Hyperliquid focuses on ultimate on-chain transparency, while Lighter emphasizes achieving "verifiable execution" through zero-knowledge proofs to provide users with a Central Limit Order Book (CLOB)-like trading experience.

This battle over the future direction of decentralized derivatives exchanges is expected to peak in 2026.

Meanwhile, discussions about Lighter's trading fees have surfaced. Some users have pointed out that Lighter charged as much as 81 basis points (0.81%) for a $2 million USD/JPY forex trade, far exceeding the near-zero spreads of traditional forex brokers.

Some argue that Lighter does not follow a B-book model that bets against market makers, instead anchoring its prices to the TradFi market, and the high fees may be related to the current liquidity or market maker balance incentives. Providing a more competitive spread for real-world assets (RWA) in the highly volatile crypto market is a key issue Lighter will need to address in the future.

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