Disclosure: I’m a general partner at Blockchain Capital, a venture firm with a large, long-term $AAVE position. I want to share our thoughts on this proposal.
First, we’re very happy to see this proposal from Aave Labs (“Aave Labs” or “Labs”) and think it represents an important step in the Aave ecosystem’s evolution towards a mature DAO. For many reasons, it’s tricky to navigate the relationship between labs companies and DAOs and we genuinely don’t have good precedents to go off of here, so we’ve been thinking about this from first principles.
At a basic level, DAOs are good for aligning stakeholders in a decentralized system and deciding how the resources of the DAO are used and allocated. Companies are good for execution: building products, taking them to market, exploring partnerships, interfacing with the legal system, etc. What we want to aim for as token holders is a healthy relationship between the DAO and the companies that operate in service of it.
This requires balance. If the DAO micromanages companies, the companies won’t be able to make much progress; if companies don’t have the right checks and balances, then the DAO may end up ceding too much control to the companies. The goal is to find a way to enable companies that work inside of the DAO to execute at a world class level in a competitive environment while making real commitments that keep value and ultimate authority at the governance level.
This proposal looks like a mature effort to define that balance. Sending 100% of Aave-branded net product revenue to the DAO is a very clear way to align incentives and represents a full commitment from Labs to the DAO. It also makes sense to pair that with a clear funding model for the team doing the work: if the DAO owns the economics of the product layer, the DAO should fund the development, go-to-market, security, and operations needed to grow it. The milestone-based funding and streaming payments feel like the right approach in that they give Aave Labs enough stability to plan and execute while maintaining clear, enforceable governance checkpoints.
We also think the brand and trademark section is a necessary step toward a more professional setup. Since the DAO isn’t a legal entity, someone has to hold and defend the trademarks. Moving stewardship to a foundation that must operate within DAO-approved rules is a good direction, in our view, as long as the follow-up proposal adds clear safeguards, e.g., transparent licensing rules, conflicts-of-interest policies, regular reporting, an appeals process, and a clear way to replace the steward, or those managing it, if needed. If the DAO can get those details right, it could help protect users from scams and confusion while maintaining the brand as a community-governed ecosystem asset.
Putting implementation details aside, the only real alternative to this direction is that Aave Labs pursues independent business models and funding. That might still drive some value to the protocol, but as token holders, we think it’s in our best interest to do what we can to fully align Aave Labs within the DAO, and, from our read, that’s what this proposal represents.
Our view is that the question that should be asked when considering whether or not to grant this kind of funding proposal is whether this team/company has the track record, plan and alignment to warrant a large investment from the DAO. Our view at Blockchain Capital is that Aave Labs unequivocally has a track record that warrants our full support, and we think the most productive thing for the DAO to do is to work with this proposal in an effort to position the Aave ecosystem for success. We’re excited about the products Aave Labs is building and believe that this could be a high ROI investment for the DAO to make. We also believe it is far better than Labs seeking independent funding. If successful, this can stand as a template for future proposals from other companies that want to be part of the DAO and contribute to the Aave ecosystem. In 10 years, hopefully the protocol has dozens of talented, competitive teams that are aligned towards growing the protocol. This could be an important step towards getting there.
With that said, we think there’s a handful of details that need to be worked out, such as clearly defining net revenue. The spirit of this makes sense: product builders who choose to work in the DAO need to be able to be competitive. Normal companies get to re-invest their revenue into growth. The DAO needs a mechanism for Aave-aligned companies that matches this, but it should iron out the guardrails and set a framework for how this changes over time. It is also important to discuss allowing a prospective labs team to have reinvestment flexibility. This could be accomplished by adding a simple policy with thresholds, below which, the team can move fast; above it, governance has visibility or approval authority.
With some additional discussion and guardrails, we think this proposal is an excellent step forward for all participants in the ecosystem, and we hope to work collaboratively towards an operating framework that positions the Aave protocol for long term success.
Disclaimers: Blockchain Capital holds the AAVE token but is not otherwise affiliated with the Aave Protocol and is in no way affiliated with Aave Labs. Blockchain Capital does not hold equity in Aave Labs or any of its affiliated entities. Neither Blockchain Capital nor the author guarantees the accuracy, adequacy or completeness of information provided in this post. No representation or warranty, express or implied, is made or given by or on behalf of Blockchain Capital, the author or any other person as to the accuracy and completeness or fairness of the information contained in any post and no responsibility or liability is accepted for any such information.
Nothing contained in this post constitutes investment, regulatory, legal, compliance or tax or other advice nor is it to be relied on in making an investment decision. This post should not be viewed as current or past recommendations or solicitations of an offer to buy or sell $AAVE or any other digital asset, any securities, or to adopt any investment strategy. This post may contain projections or other forward-looking statements, which are based on beliefs, assumptions and expectations that may change as a result of many possible events or factors. If a change occurs, actual results may vary materially from those expressed in the forward-looking statements. All forward-looking statements speak only as of the date such statements are made, and neither Blockchain Capital nor the author assumes any duty to update such statements except as required by law.