Breaking! $AAVE internal conflict erupts, core team announces departure, is the 26 billion empire breaking up?

A protocol earning $140 million annually and holding 60% of the DeFi lending market share, the real crisis may not be the market itself but internal conflicts. $AAVE, a giant with a total value locked (TVL) of $26 billion, is embroiled in a fierce battle over “who defines history.”

In mid-February, the founding team, Aave Labs, proposed a framework called “Aave Will Win.” The core idea is that all future product revenues will belong to the DAO, but in exchange, Labs requests approximately $51 million in funding in the first year. This amount represents 31.5% of the entire DAO treasury and 42% of its non-$AAVE token reserves.

The framework also suggested establishing the still-in-testing V4 version as the technological future, while pausing and planning to eventually deprecate the current V3 version, which generates all revenue. Before the vote, the community proposed several constraints, but ultimately, the final vote did not include any actionable commitments.

A few days later, two sharply contrasting reports appeared almost simultaneously on the governance forum. Aave Labs released a detailed contribution report, listing over 570,000 lines of code written since 2017, covering all versions from V1 to V4 and multiple innovations. They argued that attributing revenue to a single contributor would distort the collaborative nature of protocol development.

On the other side, Marc Zeller, founder of ACI, published a financial analysis. He pointed out that Aave Labs had already received $86 million in funding, with 23% of the token supply tracked to wallets related to foundational infrastructure. His calculations showed that the institutional product Horizon, launched by Labs, generates $1 in revenue for the DAO at a cost of $24. He also listed six independent products considered failures or losses and noted that 98% of the revenue code in V3 was not directly provided by Labs.

At its core, the controversy is a clash of narratives: the founding team sees itself as the indispensable initiator of the protocol, deserving ongoing funding; meanwhile, strong voices within the DAO argue that Labs should be held to the same accountability standards as other service providers.

The real warning signs appeared eight days after the framework was released. BGD Labs, which built most of V3’s core functions and governance infrastructure, announced it would not renew its contract after it expired. Their departure was directly caused by feeling pressured by Labs to promote V4 without collaborating on its development and by restrictions imposed on improvements to V3.

This team, which contributed all current revenue-generating code, plans to leave completely after providing two months of security support, in June. Since the branding dispute in December last year, $AAVE’s price has fallen about 32%, while its main competitor, $MORPHO, has risen approximately 42% in the same period.

Such tension is uncommon in the DeFi world. Most protocols are dominated by the founding team, with governance often merely symbolic. $AAVE’s uniqueness lies in successfully building a truly decentralized ecosystem composed of independent, financially robust service providers like BGD, ACI, and Chaos Labs.

The conflict hinges on $AAVE’s success. But now, the question is whether the DAO, during voting, is aware that creating a governance environment that squeezes out the most capable independent developers may be undermining the very foundation that sets this protocol apart. It’s not about money; it’s about people.

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