Written by: Castle Labs

Compiled by: Chopper, Foresight News

Aave is the largest lending protocol in the DeFi space, with a total locked value of $26 billion and annual revenue of $140 million, holding a 60% share of the DeFi lending market. However, today, a heated debate arose in its governance forum regarding how it has come to this point in history.

The founding company Aave Labs and the most powerful representatives of the decentralized autonomous organization Aave DAO each released opposing versions of the same historical account. Neither side is neutral; both hold significant governance power, and there are conflicts of interest in the results of the current token holder votes.

Below is a restoration of the facts based on original documents.

A Proposal

On February 12, Aave Labs released a framework proposal titled "Aave Will Win." The proposal stipulated that 100% of product revenue would flow to the DAO, but Labs demanded $42.5 million in stablecoins and 75,000 AAVE tokens in the first year, amounting to approximately $51 million. This equates to 31.5% of the entire treasury and 42% of the non-AAVE reserves.

The framework also proposed to approve V4 as the technical future of the protocol, to suspend the development of new features for V3, and to plan for the eventual phasing out of V3. Currently, V4 is still on the testnet, while all of Aave's revenue comes from V3.

Prior to the Snapshot vote, community feedback requested to disclose wallet information, establish a foundation structure before fund distribution, and link the phasing out of V3 to the adoption milestones of V4. However, the vote did not make any executable commitments regarding any of these matters.

Two Opposing Narratives

On February 25, two posts appeared in the Aave governance forum within a few hours of each other.

Aave Labs released a contribution report that covered all protocol versions from V1 to V4, flash loans, eMode, security modules, GHO, front-end, and brand building. Since 2017, they have written over 570,000 lines of code. Regarding revenue attribution, their stance is that the architecture enabling these strategies is their original design, and attributing revenue to any single contributor would distort how layered protocol development operates.

ACI founder Marc Zeller published a financial analysis report. He pointed out that Aave Labs has accumulated a total of $86 million in funding, including the 2017 ICO, venture capital, DAO payments, and fees he claims were misappropriated from the DAO without governance votes. He tracked that 23% of the token supply flowed to 52 wallets connected to the founding infrastructure. He calculated that for Labs' institutional-grade RWA product Horizon to bring $1 of revenue to the DAO, the DAO had to spend about $24, including $4.2 million in Merkl incentive expenditures, while the revenue was only $216,000. He also listed six products that he believes have either failed or are still operating at a loss and claimed that 98% of the revenue from V3 did not come from code directly provided by Labs but rather from code provided by BGD Labs and other DAO service providers.

Both sides hold their ground, and both have conflicting interests.

Core Developers Depart

Eight days after the release of the Aave Will Win framework, BGD Labs announced that it would not renew its contract after it expires on April 1.

BGD built versions from V3.1 to V3.7, Liquid eMode, and most of Aave's governance infrastructure. Their departure was due to Labs pressuring V3 to promote V4 without collaborating with BGD on the development of V4, and imposing what BGD termed "artificial constraints" on V3 improvements. This team, which contributed all the code for Aave's current revenue, believes the current environment is no longer suitable for them. They proposed to offer two months of security assurance in response to major security incidents. After June, they will completely leave.

Since the brand ownership dispute in December 2025, the price of AAVE has fallen by about 32%. In the same period, the price of Morpho, which charges no protocol fees, has risen by about 42%. It is still difficult to determine whether the uncertainty of governance led to this divergence or if other factors caused the differences. However, it is certain that Aave can generate $140 million in revenue annually and is conducting token buybacks, while its token's performance over the past two months has significantly lagged behind direct competitors.

What is the Core of the Controversy?

Setting aside the conflicting data, the core controversy is quite simple: Aave Labs is the originator of the protocol and should be entitled to ongoing funding commensurate with its contributions. In contrast, a coalition composed of DAO representatives believes that Labs is just one of many service providers and should be held to the same accountability standards as other service providers.

Both positions are consistent in themselves. This tension is not dysfunction but a sign that something unusual is happening within Aave.

Most DeFi protocols do not encounter this issue. Most protocols have a founding team that acts as the DAO, responsible for decision-making and fundraising. In most cases, governance is merely a facade. Aave is different: it has a true ecosystem composed of numerous service providers with technical strength and financial independence (BGD, ACI, Chaos Labs, TokenLogic) that can genuinely challenge the founding team's proposals. Such a situation is extremely rare. Building this distributed contributor infrastructure is very difficult, and most protocols cannot achieve it.

The existence of conflict presupposes that no matter how "Aave" is defined, it has indeed succeeded.

The current question is whether the DAO recognizes its position before voting. BGD's departure is the clearest risk signal. If the governance environment becomes one where the most optimal independent developers exit due to pressuring by Labs' directives, then the distributed contributor model that makes Aave unique may begin to unravel.

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