AAVE Community Challenges Aave Labs Over Governance and Control

The community is supposed to use AAVE as a ballot to decide the direction of the successful DeFi protocol. However, Aave Labs appears to be acting unilaterally and is therefore facing resistance, leading to conflict.

AAVE is by far the most important decentralized protocol for lending on Ethereum (ETH), and its success is reflected in fee revenues approaching $1 billion this year. However, a conflict is currently brewing between the community and the founders, who, through Aave Labs, exert deep control over day-to-day operations. This dispute is a prime example of the difficulties that supposedly self-governing projects face.

The token essentially serves as a vote in strategic decisions; such concepts are known as Decentralized Autonomous Organizations (DAOs) . Now, a “poison pill” is being proposed by the community to curtail Aave Labs’ influence.

AAVE Labs diverted revenue to itself – DAO community outraged

This follows the Labs’ unilateral decision in early December to enter into a partnership with CoW Swaps. The resulting fee revenue flows to Aave Labs, whereas with their previous partner, Paraswap, revenue went to the AAVE DAO self-governing body. Therefore, the “poison pill” proposal, which “tulipking” intends to put to a community vote, calls for a decision to sue the Labs.

The proposal demands that the company transfer its software code, copyrights, and trademark rights to the community, relinquish assets, and transfer collected fees. In other words, the AAVE DAO self-governing body should take over Aave Labs because they feel cheated.

Aave founder Stani Kulechov, who now serves as CEO of Aave Labs, attempted to downplay the sharply criticized move towards CoW swaps. He wrote in the online discussion that this action should have been put up for discussion beforehand and that more transparency should have been provided. Now, however, he remains silent, as the “poison pill” is being directed at him through Aave Labs. For the moment, the proposal to sue Aave Labs for a potential procedural error will not be put to a preliminary vote, but that could change very quickly.

Conclusion: Is AAVE’s success story jeopardized by internal conflicts?

Several initiatives have already been launched this year by the community, including a token buyback program and the abandonment of protocol presence on blockchains that have proven unprofitable. AAVE’s self-governance is therefore fundamentally functioning, and this could persuade Labs to compromise.

Both parties have a strong interest in the company remaining profitable and preventing public infighting that damages its image and business model. However, the grassroots democracy inherent in a DAO is a complex and challenging process – in AAVE’s case, it apparently also serves as a check on Labs.

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(Featured image by Markus Winkler via Unsplash)

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