Original title: Who Owns 'Aave': Aave Labs vs Aave DAO
Original author: Ignas, Crypto KOL
Original translation by: Felix, PANews
A recent dispute between Aave Labs and Aave DAO over fee distribution issues arising from the CoWSwap integration has been viewed by the community as a potential crisis in DeFi governance. This article offers a neutral perspective on the debate, and the details are as follows.
On December 4th, lending protocol Aave Labs migrated the default redemption integration of its front-end interface, aave.com, from ParaSwap to CoWSwap. While this may seem like a minor product update, it actually exposed deep-seated, long-standing internal conflicts within Aave.
This conflict isn't about CowSwap, fees, or even user experience; it's about ownership—who controls Aave, who decides the allocations, and who reaps the value created around the protocol.
Under the old setup, the redemption 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 are redistributed as income to the Aave DAO treasury.
The integration with CowSwap changed this.
According to Aave documentation, the exchange now incurs a fee of approximately 15 to 25 basis points. Orbit, on behalf of EzR3aL (a senior governance participant and independent delegate of the Aave DAO), investigated the destination of these fees and concluded that they no longer go into the DAO treasury but instead flow into an address controlled by Aave Labs.
"Assuming only $200,000 is transferred per week, the DAO would lose at least $10 million a year." —EzR3aL
Did Aave Labs unilaterally cut off DAO's revenue streams and transfer it to a private company?
Aave has been able to operate smoothly for many years because, although the division of responsibilities is vague, the interests of all parties are aligned.
DAO Governance Protocol
• Aave Labs for building front-end interfaces
Most of the funds flow in the same direction, so nobody pays much attention to defining the issue.
This tacit understanding now seems to have broken down.
As Aave founder and CEO Stani.eth wrote:
• "At the time, Aave Labs decided to donate to Aave DAO under those circumstances (funds that could have been returned to users)."
Aave Labs responded: "Protocols and products are different concepts."
Aave Labs' response on the forum:
• "This front-end interface is operated by Aave Labs and is completely independent of the protocol and DAO's management."
• "This front-end interface is a product, not a protocol component."
From their perspective, this is normal. Running the front-end requires funding, security requires funding, and support also requires funding.
The flow of Paraswap's earnings to the DAO is not a permanent rule. There is no precedent to follow.
ACI (the service provider that provides services to Aave DAO) and its founder Marc Zeller see this as a matter of fiduciary responsibility.
"Every service provider on the Aave DAO payroll has a mandatory fiduciary duty to the DAO and is therefore responsible for the best interests of AAVE token holders." — Marc Zeller's comment on the forum.
He believes there's an unspoken agreement: DAO lends out its brand and intellectual property, and the profits from the front end should also belong to DAO. "It seems we've been kept in the dark, taking this for granted."
Marc Zeller also claimed that the DAO lost revenue and that routing decisions may have pushed trading volume to competitors, resulting in Aave DAO losing approximately 10% of its potential revenue.
Agreements and Products
Aave Labs has drawn a clear line between its agreements and its products.
The DAO manages the protocol and its on-chain economy. Aave Labs, on the other hand, operates its front-end interface as a separate product with its own unique philosophy.
As the founder of Aave explained in this tweet:
• Aave Labs’ front-end interface is a product entirely based on our own philosophy, which we have been developing for over 8 years. It is similar to other interfaces that utilize the Aave protocol, such as DeFi Saver.
• It is perfectly reasonable for Aave Labs to monetize its products, especially since it does not touch the protocol itself, and given the ByBit security breach, this ensures secure access to the protocol.
Aave DAO does not own intellectual property rights because DAO is not a legal entity and cannot hold trademarks or enforce trademark rights in court.
The DAO manages the smart contracts and on-chain parameters of the Aave protocol, but does not manage the brand itself.
However, the DAO has been granted a license 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, the Aave ecosystem, and the Aave DAO."
Source: Aave
As EzR3aL said:
"The reason it's feasible to charge this fee is because the Aave brand is widely recognized and accepted within the ecosystem. This is a brand that Aave DAO has paid a price for."
The value of the Aave brand does not stem from a logo.
Its value stems from:
• DAOs carefully manage risks
• Token holders bear the risks of the protocol.
DAO pays fees to service providers.
DAO survived multiple crises without collapsing.
The agreement has earned a reputation for being safe and reliable.
This is what EzR3aL meant by "the brand that DAO paid a price for".
It was not a legal investment, but an economic one, involving the investment of funds, governance, risk, and time.
Does this sound familiar?
This brings us back to a similar issue between Uniswap Labs and the foundation regarding Uniswap's front-end fees. Ultimately, Uniswap restructured the equity and token holder benefits, completely eliminating front-end fees.
This is why equity/DAO dynamics can cause harm (this is something I discovered from a Telegram group chat).
The content of the image above is as follows:
"Equity (the equity holder) issues a token and distributes these tokens to itself and others. If the DAO generates profits, Equity can profit from its share of the tokens it holds in the DAO."
However, Equity does not bear the loss of the product; these 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, which have specific risk parameters and liquidity tied to that particular implementation.
If Equity wants to generate additional revenue beyond the profits from the tokens it initially minted and allocated to itself, everyone agrees that it could develop a separate product to provide services to users, just as DeFi Saver is a separate product that charges for its unique services.
Access to a product should never be restricted to a single front-end.
As of this writing, the only point of contention Aave Labs agrees with critics is regarding communication.
The real valid criticism here is about communication, or rather, the lack of communication.
Things were complicated enough, but now they're even worse.
Aave Labs proposed Horizon as a dedicated RWA instance.
Initially, the proposal contained something that immediately alarmed the DAO: a new token with diminishing returns.
Representatives from various factions (including the author) strongly opposed the introduction of a separate token, arguing that it would dilute AAVE's value proposition and undermine consistency.
The DAO ultimately prevailed, forcing Aave Labs to concede. The new token plan was cancelled.
But this sparked even greater divisions.
Despite numerous concerns (one of which explicitly outlines the clear responsibilities of Aave Labs and the DAO), Horizon went live. This was the most controversial vote to win.
I voted against deployment, advocating for a friendly agreement to prevent future escalation of conflict. And that's exactly the situation now. Economic issues have quickly become the focal point of the conflict.
According to data cited by Marc Zeller, Horizon has generated approximately $100,000 in total revenue to date, while Aave DAO has invested $500,000 in incentive funds, resulting in a net worth of approximately -$400,000 on its books.
And this doesn't even take other factors into account.
Marc also pointed out that tens of millions of GHO tokens were invested in Horizon, but the returns were lower than the costs required to maintain the GHO's anchor price.
If these opportunity costs are taken into account, the real economic situation of DAOs may be even worse.
This prompted ACI to raise a question that goes beyond Horizon itself:
If a project funded by the DAO has poor direct economic benefits, is that the whole story?
Alternatively, are there any additional benefits, integration fees, or off-chain arrangements that token holders cannot see?
Over the years, deployments and plans proposed by various Labs have ultimately resulted in DAOs costing more than they have benefited.
Discussions began a few days after Aave Labs proposed a DAO to deploy Aave V3 on MegaETH.
In return, "Aave Labs will receive 30 million MegaETH credits".
Then, "these credits may be distributed as incentives on the Aave V3 MegaETH market, in accordance with Aave DAO's GTM strategy."
The problem is that when a product is operated by a private entity and uses assets backed by a DAO, transparency is important, while ensuring that incentives are distributed as agreed.
Source: Aave
There is another reason why this proposal is surprising:
Aave DAO is partnering with several service providers, notably ACI, which proposed deployment on MegaETH as early as March. Discussions are ongoing.
Source: Aave
As Marc commented in the forum:
"During the discussions, we were quite surprised to find that Aave Labs decided to bypass all precedents, abandon all ongoing progress, and contact MegaETH directly. We only learned of this when the proposal was posted on the forum."
treasury
Another part of the debate concerns the Aave vault.
Aave Vaults are application-level products built and funded by Aave Labs. Technically, they are ERC-4626 vault wrappers built on the Aave protocol, providing users with an abstraction for position management.
Stani explained this very clearly:
"Aave Vault is just a wrapper around Vault 4626, which was built and funded by Aave Labs."
From Aave Labs' perspective, this should not be controversial.
The vaults are not components of the protocol. They do not affect the protocol's profitability.
These are optional; users can always interact directly with the Aave marketplace or use third-party vaults.
• "This vault is not necessary for Aave V4... Users can interact with Aave V4 directly through Hubs."
Furthermore, since the vault is a product, Aave Labs believes they have the right to profit from it.
"Aave Labs has no problem monetizing its products, especially since they don't involve the protocol itself."
So why was the vault involved in this fight?
The reason lies in the distribution channels.
If Vault becomes the default user experience for Aave V4, then a Labs-owned product bearing 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 increasing adoption of Aave products, the AAVE token will still be affected.
To reiterate, the author believes this issue falls into the same category as the debate between Uniswap Labs and the foundation regarding front-end products.
In summary, CowSwap, Horizon, MegaETH, and Aave Vaults all face the same problem.
Aave Labs sees itself as an independent builder, operating a product with subjective opinions on top of a neutral protocol.
DAOs increasingly believe that the value of protocols is being realized outside of their direct control.
Aave DAO does not own the intellectual property rights, but it has been licensed to use the Aave brand and visual identity for purposes related to the agreement.
This debate is crucial because the upcoming Aave v4 version is explicitly designed to shift complexity from the user's perspective to an abstraction layer.
More routing, more automation, and more products positioned between the user and the core protocol.
More abstraction means more control over the user experience, and user experience control is the key to value creation/extraction.
This article strives to remain neutral. However, it hopes to reach a consensus on the value capture of token holders.
The consensus the author hopes to achieve is not only beneficial to Aave itself, but also because Aave sets an important precedent for how equity and tokens can coexist.
Uniswap Labs has completed this process and ultimately made the outcome favorable to the holder of $UNI.
The same should apply to Aave.
