What To Know:
- The switch to CoWSwap redirected swap fees away from the Aave DAO, triggering concerns over lost revenue and weakened governance control.
- Aave Labs maintains the frontend is an independent product, while the DAO argues that brand value and risk were built by token holders.
- The dispute could influence how DeFi protocols balance DAO governance with product-level monetization going forward.
A simmering dispute between Aave Labs and the Aave DAO has escalated into one of the most closely watched governance controversies in decentralized finance and raised doubts over revenue ownership, accountability, and long-term alignment.
Aave Labs vs Aave DAO
The flashpoint emerged on December 4, when Aave Labs replaced ParaSwap with CoWSwap as the default swap integration on its frontend, aave.com. The change appeared routine. It was not. The update redirected swap-related fees away from the DAO treasury, which triggered accusations that protocol value was being siphoned outside the DAO’s control.
Under the previous configuration, swap functionality served as a retention tool. Users could rebalance positions without leaving the Aave interface, while referral fees and positive slippage flowed back to the DAO. Those funds supported incentives, risk management, and ecosystem development. That flow has now changed.
According to Aave documentation, swaps routed through CoWSwap carry fees ranging from 15 to 25 basis points. Governance delegate EzR3aL traced those fees and concluded they were being directed to an address controlled by Aave Labs rather than the DAO treasury.
“Assuming just $200,000 per week is redirected, the DAO loses at least $10 million annually,” EzR3aL wrote. The issue quickly moved beyond swap mechanics. It exposed unresolved structural ambiguity inside Aave itself.
For years, Aave operated under an informal alignment. The DAO governed the protocol and Aave Labs built and maintained the frontend. Revenues broadly accrued in the same direction. Clear legal boundaries existed only on paper, and few questioned them while incentives remained aligned.
Aave Labs maintained that the frontend is an independent product, distinct from the protocol. In forum statements, the team emphasized that operating a secure, compliant interface requires sustained funding and that monetization does not alter protocol mechanics.
“The frontend is operated independently and is not a protocol component,” Aave Labs stated.
From a product perspective, the argument is coherent. Infrastructure carries costs. Security failures carry consequences. The precedent of ParaSwap fees flowing to the DAO was informal rather than contractual.
However, service providers to the DAO view the situation differently.
Marc Zeller, founder of ACI, described the matter as a fiduciary breach. He argued that DAO-funded contributors are obligated to act in the best interest of AAVE token holders and that an implicit understanding existed around brand usage and revenue attribution.
“The DAO provided the brand, the trust, and the economic backing,” Zeller wrote. “The assumption was that value generated through that surface accrued to the DAO.”
Zeller further warned that routing decisions could divert volume toward competitors, potentially reducing DAO income by roughly 10 percent.
At the center of the dispute lies the Aave brand itself. Aave Labs asserts that the DAO does not own the brand or intellectual property, and cited the DAO’s lack of legal personhood. Governance proposals, however, granted the DAO broad rights to use the brand and visual identity for protocol-related purposes.
EzR3aL argued that the brand’s value was created economically, not legally.
That value came from risk oversight, capital deployment, crisis management, and years of governance borne by token holders. It is this accumulated trust that enables fee extraction at scale.
The dispute shows earlier tensions at Uniswap, where frontend monetization triggered backlash from token holders. That episode ended with fee removal and a rebalancing of interests toward the DAO. Aave’s conflict has since widened.
The launch of Horizon, an RWA-focused initiative backed by DAO incentives, intensified scrutiny. Despite the removal of a proposed new token following community resistance, Horizon proceeded after a narrow and divisive vote.
According to figures cited by Zeller, Horizon has generated roughly $100,000 in revenue while consuming $500,000 in DAO incentives. Additional costs linked to GHO liquidity and peg maintenance further weigh on the balance.
Similar concerns surfaced around a proposal to deploy Aave V3 on MegaETH. The DAO learned that Aave Labs would receive 30 million MegaETH points, with distribution mechanics left dependent on execution transparency.
The issue extends to Aave Vaults, ERC-4626 wrappers built and operated by Aave Labs. Even though optional, these vaults could become the default interface in Aave V4, placing a Labs-controlled product between users and the protocol.
As Aave V4 introduces deeper abstraction, routing, and automation, control over user experience increasingly determines where value accrues. When that control sits outside DAO oversight, token holders face dilution by design rather than by accident.
The controversy shows a common challenge across DeFi i.e, protocols built on shared governance struggle when product-layer monetization advances faster than governance frameworks.
Aave’s outcome will set a precedent for the future. Note that Uniswap resolved a similar conflict by prioritizing token-holder alignment.
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