1. Summary
Aave began with the thesis that decentralized lending could play a major role in traditional finance. Eight years later, that thesis has been validated. Aave is the largest protocol in decentralized finance, commanding a 60% market share in lending. The opportunity ahead, however, is bigger than anything behind us.
Detailed below is a strategic framework proposal for Aave’s next chapter. It asks the Aave DAO to ratify Aave V4 as the protocol’s foundational technology for future growth. It also proposes to direct all revenue from Aave-branded products built to the DAO treasury and to establish a budget for continued development. It also includes a solution to protect the Aave brand.
This proposal asks the DAO to approve the following operational framework:
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Direct 100% of Aave-branded product revenue to the Aave DAO treasury.
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Commit to a solution for protecting the Aave brand.
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Ratify Aave V4 as the protocol’s core technical foundation for future development.
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Create a framework for the DAO to fund strategic growth and development.
2. Motivation
The LEND token sale in 2017 raised $16M to build a decentralized lending protocol. That protocol became Aave, and that $16M has grown into a multi-billion dollar ecosystem, creating billions in value in the process.
Along the way, Aave Labs has requested DAO funds only for direct protocol development and marketing activities. Everything else has been self-funded. This includes the product layer, which encompasses aave.com, the Aave mobile app, Aave Pro, Aave Kit, and Aave Horizon. It also includes legal and regulatory work such as SEC defense, brand protection, trademark management, and compliance. Business development and growth has been self-funded as well.
We are now entering one of the most important periods that will determine Aave’s success going forward. Fintechs are entering DeFi, institutions are coming onchain, and regulatory clarity is emerging in certain markets that allows us to go direct to consumers. The protocols that win the next decade will be those that move fast, build great tools and products, and capture new markets before competitors. With the right focus, and by investing in important growth areas, Aave is positioned to do exactly that.
Other approaches to this framework exist, however they have different trade-offs. Aave Labs could operate independently and keep product revenue to fund itself, but then there would need to be a separation of the protocol revenues from the ones generated by the Aave-branded products built on top of the protocol. The DAO could directly build and operate Aave-branded products through governance, but the execution would be slow, and governance overhead can’t scale indefinitely to meet the pace required.
3. Specification
100% Aave Product Revenue to the DAO
The first ever Aave governance proposal, AIP-1, established that AAVE token holders govern the Aave Protocol, which has led to the DAO rightfully collecting 100% of protocol fees.
And since the protocol’s launch, Aave Labs has operated aave.com, which became an important access point for most protocol usage across retail users, power users, and integrators. This has supported millions of users with zero security incidents. The DAO has matured quite a bit since AIP-1 and we believe it’s time to align behind a token-centric model.
Under this proposal, 100% of Aave Labs’ product revenue will go to the DAO. This includes:
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aave.com, the existing interface, and all associated fees
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Aave App, the consumer mobile application
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Aave Card, a card tied to Aave App with all fees flowing to the DAO
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Aave Pro, the new interface for Aave V4
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Aave Kit, enterprise solutions for fintechs and institutions building on Aave
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Aave Horizon, Aave’s RWA market and institutional services
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AAVE ETP, exchange traded product of $AAVE
Upon approval of this proposal, the DAO would also receive revenue from the swap integration on aave.com, which currently generates approximately $10 million in annualized revenue. This integration is expected to expand to additional chains and functionality.
Revenue is defined as gross product revenue earned by Aave Labs, minus any direct revenue sharing paid by Aave Labs to external partners including revenue rebates, revenue subsidies, revenue sharing arrangements and any additional direct user incentives.
Product growth incentive budgets are funded by the Aave DAO. Additionally, Aave Labs retains the discretion to redirect a portion of product inflows, such as vault yields, directly into user incentives. Competing for users requires the ability to deploy capital quickly toward growth without waiting for a governance cycle. In these instances, Aave Labs will disclose additional user incentives spending in our quarterly updates.
With proper execution, the product layer can be an additional source of revenue for the DAO treasury. Combined with protocol fees, the DAO can fund its own growth, security, and development from a diversified revenue stream.
Expanding Revenue Through Aave V4
The product layer is one part of the path to increasing the DAO’s annual revenue. The protocol layer, powered by Aave V4, is the other. Aave V3 already generates over $100 million in annualized revenue. Aave V4 expands on V3 with new monetization features that allow the protocol to capture more value from the risk it underwrites.
V4’s architecture also unlocks revenue streams that are not easily possible in previous Aave versions. Each Spoke can extend Aave into a new market or use case, with its own risk parameters and revenue model. As with V3, 100% of Aave V4’s protocol revenue will go to the DAO.
We’ve taken a look at various products and protocols across the crypto and fintech industries to show estimations that highlight the size of the opportunities available:
* These opportunity estimates are based on other protocols or products in each category (e.g. Pendle, Fluid), and the size of the opportunity (e.g. OTC lending volume), etc. They each represent a net new revenue opportunity on top of what Aave generates today, and they are only possible to pursue in a scalable way once V4 is live. Reaching these estimates would also depend on market conditions, scale of adoption, and execution.
Aave V4 also introduces a new reinvestment module, which is an optional net new revenue opportunity for the DAO to consider. Aave pools maintain a significant idle float that currently earns nothing. This reinvestment feature allows the protocol to sweep this capital into short-term, low-risk yield opportunities pre-vetted and approved by the DAO, similar to a collateral listing.
When Aave rates fall below SOFR-rates, it signals underutilized liquidity that could be productively deployed. Based on historical stablecoin float levels and a risk-free proxy SOFR-rate, the additional interest that would have been earned is substantial:
* Based on historical performance and idle liquidity. These figures are illustrative good faith estimates included to inform governance discussions around prioritization and resource allocation. They are not projections, commitments, or expectations, and actual outcomes may vary materially depending on governance choices, execution, adoption, and market conditions.
This interest can be split between depositors and the DAO or whatever else the DAO decides. The analysis does not include other strategies such as ETH staking or reinvesting into higher-yield opportunities, which are also an option if the DAO chooses.
Taken together, these opportunities illustrate the range of operational scale the DAO may need to support across both the protocol and product layers if adoption and market conditions warrant it. Viewed as an aggregate opportunity set, they suggest that the long-term revenue ceiling for the Aave ecosystem is materially higher than today.
Ratification of Aave V4
Aave V3 has served the protocol well, but it is approaching its architectural limits. Adding new features to V3 requires modifying core protocol logic, which involves extensive audits and significant coordination overhead. Meanwhile V4’s architecture allows new functionality to be added through Spokes without touching the core, making experimentation cheaper, faster, and safer.
Importantly, anything V3 does can be recreated on V4, but not vice versa. V4 is a strict superset of V3’s capabilities, meaning no functionality is lost in the upgrade.
V4’s architecture expands the range of revenue models the protocol can support, which is why governance analysis considers higher-scale revenue scenarios when planning long-term operations. To capture the opportunities outlined above, Aave Labs and the rest of the DAO’s service providers should coordinate development efforts around V4. This means prioritizing V4 Spoke development, aligning roadmaps, and shifting new feature work away from V3. Notably, V4 is already live on testnet, has completed an open security contest, and has its first public audit.
The DAO is being asked to agree on this strategic direction and a separate proposal will follow for V4 protocol activation, the launch setup, etc.
V3 Maintenance Plan
That said, V3 should not be shut down hastily or haphazardly. V3 is stable, mature, and battle-tested. There is no need for a rushed, or forced, migration, and the transition should happen in three phases:
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Active Development (Current). V3 remains the primary production system, with security patches, parameter updates, and critical maintenance continuing as normal. It also makes sense to pause any new features for V3 if this framework is passed.
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Stable Maintenance (Upon V4 Launch). V4 becomes the primary technology layer for expansion and innovation. V3 documentation, tooling, and access points remain fully supported, and users migrate at their own pace.
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Legacy Support (8-12 Months After V4 Launch). Once V4 is mature, V3 parameters should be gradually adjusted to encourage migration, following the same approach used in past version transitions. V3 remains open indefinitely for withdrawals, with governance stepping in only for critical security issues.
If the DAO ratifies this strategic direction, coordination among service providers will be important for efficient execution. Service providers funded by the DAO can align their work with this direction to maintain Aave’s competitive position. Those who prefer to focus on different priorities can adjust their scope accordingly.
Aave Brand Governance
The Aave brand is one of the protocol’s most important assets, built over years of technical excellence, security track record, and community trust. Protecting it is in the best interest of the DAO, token holders, and the broader ecosystem.
Today, Aave Labs is the exclusive legal owner of the Aave trademarks and has been solely responsible for holding, defending, and enforcing them. Because the DAO is not a legal entity, it cannot directly hold or defend trademarks. As a result, trademark stewardship has necessarily sat within Aave Labs.
For the past seven years, Aave Labs has carried this operational burden, and the work is hands-on, expensive, and necessary. Trademarks that are not actively and consistently defended can be weakened or lost, reducing the ability to control how a mark is used in commerce and increasing the risk of misuse or confusion.
At the same time, there are understandable concerns around concentrating long-term control of such a critical asset within a single operating entity, particularly as the DAO continues to mature. To address this, and subject to DAO approval, Aave Labs proposes the creation of a Foundation that would assume responsibility for holding and stewarding the Aave trademarks going forward. The Foundation would be mandated to protect the brand, license it to approved entities, address unauthorized use, and operate in alignment with DAO-approved parameters.
The details regarding the structure, governance, and execution of this Foundation, including any transfer or licensing of trademark rights, as well as proposed approaches to V4 codebase licensing, will be presented to the DAO in a follow-up proposal.
$AAVE Market Access
To go beyond the product/protocol layer and expand market access to $AAVE, Aave Labs will support partners to launch regulated, traditional market products referencing $AAVE as the underlying asset. This includes the potential launch of $AAVE regulated futures, as well as a regulated spot exchange-traded product (ETP).
The introduction of regulated futures and ETP products would represent a meaningful step toward institutional maturity for Aave, broadening access for professional and traditional investors. A standalone proposal covering structure and execution will follow under the workstreams authorized by this proposal.
DAO Growth Requires Resources At Scale
The operational framework outlined above requires execution at scale that matches the opportunity. For Aave to scale and play a role in the real financial system, it should allocate resources in growth the way fintechs, banks, and other financial institutions do. Without commitment to this as a goal, Aave’s upside will always be limited. If all of Aave Labs’ product revenue flows to the DAO, the DAO would need to fund the ongoing development and growth of these products.
Aave Labs Funding Request
The DAO is facing a structural decision regarding Aave Labs’ operating model going forward.
Currently, Aave Labs self-funds a significant portion of its operations. Historically, the ecosystem’s direction of travel (via AIP-1) was to use fees generated by Aave-branded products, such as aave.com and other product surfaces, to cover Aave Labs’ product development, marketing, legal, and operational costs, while the DAO funded direct protocol version development carried out by Aave Labs.
Under the proposed operational framework, all fees from Aave-branded products would go to the DAO treasury rather than supporting Aave Labs’ operations and product development. In this configuration, the responsibility for funding Aave Labs’ activities would shift correspondingly to the DAO.
Aave Labs requests $25 million in stablecoins, 75,000 AAVE, with additional growth and development grants payable upon specific product launches. The funding would be structured as follows:
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Primary Grant:
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$5 million paid upfront upon approval of the proposal and $20 million streamed over the course of the year.
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75,000 AAVE delivered upon approval of the proposal, unlocking linearly monthly over a 2 year period
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Growth/Development Grants:
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$5,000,000 for Aave App launch, with funds used for user acquisition, marketing, and ongoing development
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$5,000,000 for Aave Pro launch, with funds used for user acquisition, marketing, and ongoing development
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$5,000,000 for Aave Card launch, with funds used for user acquisition, marketing, and ongoing development
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$2,500,000 for Aave Kit launch, with funds used for maintenance and marketing
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Note: For clarity, all funds will be spent on Aave-related efforts.
Growth and development grants are released upon delivery and streamed over a period of six months, with governance confirming completion before funds are disbursed. They cover the cost of bringing each product to market, from engineering through go-to-market.
Companies entering DeFi are well-capitalized and spending aggressively on product and distribution. To succeed in the market, Aave needs to invest at a similar scale. This commitment allows for long-term planning, aggressive hiring, and sustained investment in product and go-to-market without the friction of annual budget cycles.
The funding requested is a significant expansion of scope beyond historical funding. To date, Aave Labs has largely self-funded the cost of building and scaling the product layer, seeking DAO support mainly for core protocol development and focused marketing. This proposal secures the investment needed to stay competitive and continue innovating over the next decade. Growing Aave and growing it to the scale of other TradFi alternatives requires stable, predictable funding so contributors can plan, hire, and execute at the standard of a global financial platform.
Altogether, these funds are covering the following costs:
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Continued protocol development (V4 improvements, Spokes, core infrastructure, research, and development)
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Product engineering across Aave Pro, Aave App, Aave Kit, and other products
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Product go-to-market, user acquisition, marketing (e.g. social media/SEO/content) and growth
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Business development
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Aave Labs invests heavily in partnering with the largest institutional and fintech names to integrate with Aave.
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Aave Horizon asset onboarding and driving TVL/borrow growth.
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Ongoing 360° resource provision for institutional integrators, including technical, InfoSec and operational support.
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Application security
- Aave Labs runs an extensive monitoring program, and very heavy enterprise fees to social media platforms, to protect the Aave brand.
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Events, which historically Aave Labs has already run with funding from the DAO (e.g. rAAVE, DeFi Day)
With this capital, Aave Labs can build with the runway needed to succeed on the items outlined above. It would also reflect the DAO’s decision to fund the level of execution required to support protocol operations at increased scale, should governance determine that expansion is warranted.
In order to be as effective as possible, Aave Labs would retain autonomy over product strategy and operations. Building competitive products requires the ability to move quickly, make decisions without committee approval, and iterate based on market feedback. We suggest the same for other Service Providers who might choose to operate under this framework.
The grants outlined above are for one year and would need to be revisited, if approved, 12 months after the proposal is decided on.
In line with existing DAO practices, oversight of this work is exercised through governance. Aave Labs will provide regular transparency into its activities, including:
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Quarterly updates on progress against funded initiatives, key metrics, and use of DAO-authorized resources
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Ongoing updates on active workstreams and prioritization decisions
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Continued open and responsive communication with the DAO through established governance channels
4. Next Steps
Aave remains early in its journey. What exists today is a base layer, while the real scale of adoption lies ahead as global finance moves onchain. DeFi is still quite small in the grand scheme of things. And over the coming decades, trillions of dollars in assets will migrate onto open rails. In that world, Aave can become the core infrastructure for global finance.
Since 2017, the focus has been on disciplined execution at the frontier, and that conviction has only strengthened. The next phase of growth, fueled by innovation, and institutional adoption will be led by Aave. With sustained commitment and effective execution, the protocol can support significantly greater scale over time and continue establishing itself as core liquidity infrastructure for the onchain economy.
This proposal seeks to establish a framework for Aave’s next decade. Upon approval, it would reaffirm Aave Labs’ alignment with the DAO by directing all Aave-branded product revenue to the DAO treasury. It asks for the ratification of V4 as the technical foundation for this growth and for the funding to execute this vision. This framework’s objective is to position the Aave Protocol as a core piece of global financial infrastructure, with the value it creates directed to the Aave DAO to fund its continued development and success.
In accordance with Aave governance processes, this proposal is intended as an initial Temp Check to gather community feedback on the strategic direction outlined above. Any commitments, structural changes, or funding allocations would proceed through the appropriate stages of discussion, refinement, and governance proposal stages prior to implementation.
If the Temp Check is successful and the community supports this proposal, we will move forward with a formal ARFC submission.
Disclaimer
Historically, Aave Labs has self-funded its endeavors. Due to the nature of the proposal, Aave Labs would receive funding from the DAO in exchange for Aave Labs’ revenue going to the DAO if passed. No third parties co-authored this proposal.
Copyright
Copyright and related rights waived under Creative Commons Zero (CC0).
FAQ
1. Why are so many significant items grouped into a single proposal? Shouldn’t these be separate votes?
This proposal presents a single, cohesive strategy. The components are interconnected and depend on each other for success. For example, aligning on V4 as the core technical foundation informs how development efforts are prioritized, while the proposed funding framework supports coordinated execution across protocol and product workstreams. Voting on these items separately could result in a fragmented and unworkable plan. Approving the strategy without the technology, or the technology without the funding to build it, would be inefficient. This proposal is a complete strategic package, and voting on it as a whole ensures the DAO is aligned on a single, comprehensive path forward.
2. The funding request is substantial. Why does Aave Labs need this budget?
The requested budget reflects a deliberate shift in operating model rather than an incremental extension of past funding. Historically, Aave Labs subsidized a broad range of activities and requested DAO support primarily for direct protocol development and focused marketing. Under this framework, the DAO is choosing to fund a wider operational scope directly, including product engineering, go-to-market execution, product relevant legal and compliance work, and business development. This budget is intended to support long-term planning and execution at scale and to enable stable resourcing and sustained focus. It reflects a governance decision about how the DAO wishes to resource protocol-adjacent work as Aave engages more directly with an evolving and increasingly competitive market landscape.
3. Why should the DAO fund Aave Labs now if it has been self-funded for so long?
By directing 100% of revenue to the DAO, Aave Labs will not be able to self-fund going forward. Without the ability to earn or raise revenue, there is no way to cover the costs across product development, business development, and other operational functions Aave Labs has historically funded. Without funding to continue this work these functions would stop.
4. Is this funding request annual?
Yes. Aave Labs will submit an annual budget proposal to the DAO for the work it performs. Each year’s budget requires a separate governance vote, giving the DAO ongoing oversight of how funds are allocated.
5. What does “autonomy” mean in this proposal?
The proposal requests autonomy over certain operational and product strategy decisions. Building competitive products requires the ability to move quickly and iterate based on market feedback, which is difficult if every decision requires a vote. Accountability is central to this arrangement. Aave Labs commits to providing quarterly reports on progress, frequent updates on development, and continued open communication with the DAO. The DAO retains ultimate oversight through its control of the treasury and Aave Labs’ funding stream. If Aave Labs does not meet its commitments or perform effectively, the DAO can choose not to continue contributing to this budget.
6. What does ratifying V4 mean in this proposal?
This vote asks the DAO to agree on a strategic direction. Ratifying V4 in this proposal means committing to it as the core technical foundation for future development. It signals to all service providers that V4 is the priority, allowing them to align their roadmaps and development efforts. This coordination is necessary to build the features that will achieve the proposal’s goals. The subsequent vote to activate the V4 protocol will be a purely technical one, focused on the readiness of the code, launch parameters, etc.
7. Why is there compensation tied to milestones?
Launching and scaling products involves costs beyond core development work. This includes go-to-market execution, partnership development, and ongoing operational support around the time a product is introduced. The milestone-based payments are intended to support these activities at key delivery points, aligning resourcing with product rollout. As all revenue from these products flows to the DAO, funding this work supports execution that directly contributes to the protocol’s operational sustainability.
8. How does this framework impact other Service Providers working with the Aave DAO?
If the DAO ratifies this proposal, coordination among service providers will be important for efficient execution. Service providers funded by the DAO can align their work with this direction to maintain Aave’s competitive position. Those who prefer to focus on different priorities can propose adjusting their scope accordingly. Additionally, the increased surface area for revenue generation established by this proposal creates a framework that other service providers can consider for their own work with the DAO.
