How to Fix Aave
Aave is one of the greatest DeFi protocols in existence, and for many people it represents their first real “aha” moment with crypto.
It is exceptionally well positioned as the dominant market leader to become a $10B–$100B protocol in the years ahead as more of the global financial system moves on-chain.
Yet here we are, on the precipice of an incoming RWA avalanche, facing a political crisis between the Aave DAO and Aave Labs.
This article outlines a solution to align Aave DAO and Aave Labs in a true win-win scenario—and proposes what should become the default governance model for decentralized protocols going forward.
First, some context on how this crisis unfolded
At its heart, this is a control issue
Consider a comparable hypothetical
Steve Jobs founded Apple and served as its visionary CEO. As Apple matured, it became governed by a Board of Directors and eventually a public company with transparency—just like all enduring companies.
Now imagine the following scenarios:
Scenario #1: After the success of the Mac, Steve Jobs and a small team decide to build the iPhone using Apple’s brand and resources—but under a separate company they control, capturing most of the value rather than Apple shareholders.
Scenario #2: Apple pays Steve Jobs millions to build AirPods, but Jobs personally keeps 50% of all AirPods revenue.
Scenario #3: Every time someone buys an app on the iPhone, Steve Jobs personally takes a cut of the fee.
Scenario #4: Apple pays Steve Jobs millions to develop the iPad, but he insists on personally receiving a percentage of its revenue.
Scenario #5: Steve Jobs decides to step back to start an unrelated VR company.
Scenario #6 (worst of all): Steve Jobs personally owns
, along with all Apple trademarks and branding, and could walk away—or destroy the brand—at will, with Apple having no legal recourse.
In the real world, even proposing any of these would be grounds for immediate dismissal
Yet these exact dynamics have occurred at Aave
The Aave Parallels
Scenario #1: Aave Labs attempted to spin out a new HORIZON token for institutional RWA development on Aave Horizon—potentially Aave’s largest future vertical—offering the DAO just 15% of the supply while retaining 85%.
Scenario #2: After significant backlash, Aave Labs still sought to retain 50% of Horizon revenue (and is the current state of affairs)
Scenario #3: Aave Labs unilaterally routed front-end swap fees from the Aave app to themselves, despite the DAO paying millions for development of Aave v3 and v4.
Scenario #4: Aave Labs built a mobile app for Aave deposits and will likely try to take their own independent fees
Scenario #5: Stani and team launched Lens, a separate social-network protocol.
Scenario #6: Aave Labs retains ownership of all Aave IP—not the DAO.
Why This Matters Now
Stakeholders might tolerate concentrated founder control if that founder consistently demonstrated alignment as a benevolent dictator. Instead, Aave Labs has repeatedly attempted to extract value away from AAVE tokenholders.
Whether driven by greed or something else, the result is the same: continued refusal to relinquish control to the DAO.
This uncertainty has already manifested in token price action. Investors discount assets with unclear ownership and governance.
In TradFi, companies are valued using Discounted Cash Flow models. AAVE cannot have reliable cash-flow attribution when a founder can redirect value outside the token. Even if the protocol becomes more successful than any bank on Earth, it remains unclear how much value accrues to tokenholders—so the token price suffers.
Governance Reality Check
Vision and execution should not be democratic. Product direction is decided by leadership, not token votes—just like in any successful company.
But leadership must be accountable.
Accountability is impossible when the operator literally owns the IP. Aave Labs cannot be “fired” when it controls the entire asset base.
The Path Forward
The goal is simple: preserve Aave Labs’ ability to build, while eliminating unilateral control and aligning incentives.
Proposed structure:
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Aave Labs transfers all IP to a DAO-controlled legal entity
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That entity appoints directors legally bound to act per DAO votes
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The DAO mints 5% new AAVE supply for Aave Labs, subject to 4-year vesting, plus a salary
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Aave Labs retains discretion over development, but the DAO can revoke it via vote (board-style accountability)
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All protocol and product fees flow directly to the DAO—no revenue splits
A 5% dilution would be more than offset by restored confidence, clarity, and investor protection. Token value could rise 20–30%+ rapidly. Aave Labs earns $150M+ over time, with upside into the billions. Tokenholders regain ownership and alignment.
With a new U.S. regulatory regime emerging, it’s time for DAOs to mature—and stop treating tokenholders as second-class citizens to their founders.
This new structure aligns all stakeholders and will take Aave FDV to tens of billions