Is the DeFi Giant Aave Protocol In Trouble and a Price Crash Looms?

The largest decentralized finance (DeFi) lending protocol Aave is facing an internal governance conflict over swap fee diversion worth millions to Aave Labs instead of Aave DAO treasury. The debate centered on concerns over privatization and potential losses to AAVE holders following a recent integration with CoW Swap, which changed how revenue is distributed.

Aave DAO Members Question Revenue Diversion to Aave Labs

Aave Labs, a company by Aave protocol founder Stani Kulechov, announced a partnership with CoW Swap for an improved swap experience, including offering better prices and protection against MEV attacks.

However, an Aave DAO delegate revealed that swap fees are moving to a private address controlled by Aave Labs rather than to the DAO treasury. It means over $10 million in potential annual revenue to Aave DAO, which community members argue belongs to token holders.

Notably, Aave earlier used ParaSwap swap adapters and surplus revenue flowed to the DAO treasury without charging user fees. However, users pay 15-25 bps fees when using CoW Swap, with fees flowing to Aave Labs.

Marc Zeller, founder of the Aave Chan Initiative, quoted the situation as “extremely concerning,” describing it as “stealth privatization” of 10% of the Aave DAO’s revenue. Zeller argued that whether Aave Labs will also take revenue from features Vaults, Horizon, and the V4 liquidation engine.

Founder Stani Kulechov Shares Some Clarifications

Stani Kulechov rejected claims of any stolen revenue by Aave Labs. He claimed that prior ParaSwap fees were a “discretionary surplus” voluntarily donated to the DAO. He emphasized on the Aave protocol governed by the DAO and the Aave frontend maintained and funded by Aave Labs.

Also, he argued that since Aave Labs bears the costs of engineering and security for the website, it is reasonable for the company to monetize its own products.

Aave Labs accepted poor communication with the community about the changes, but defended its stance on the decision. It cited better execution prices and stronger protection against MEV as the primary motivations for switching to CoW Swap.

However, the debate raises questions as Aave maintains its dominance among DeFi lending protocols, with nearly $140 million in annualized revenue. The key questions include who owns the Aave revenue, whether DAO-funded service providers have fiduciary duties to token holders, and the line between DAO-governed protocols and company-controlled products.

Can AAVE Price Crash?

The community believes the debate will resolve key doubts, but DeFi will ultimately win. Marc Zeller also confirmed an official response to Aave Labs and Kulechov’s claims and the impact of fee diversion on the DAO and AAVE holders.

Moreover, the protocol plans v4 upgrade with a primary focus on the liquidation engine to change DeFi lending fundamentally. All liquidity will flow through Liquidity Hubs, which boost use and unlocks better rates for both suppliers and borrowers.

AAVE price has jumped more than 0.5% in the past 24 hours despite the conflict, extending the monthly rally to over 30%. The price currently trades at $195.95, with a 24-hour low and high of $187.29 and $196.27, respectively. Moreover, a 40% increase in trading volume over the last 24 hours further supports the price jump.