Author: Atomist Source: castlelabs Translation: Shan Oppa, Golden Finance

Aave is the largest lending protocol in DeFi. The locked position value reaches US$26 billion, with annual revenue of US$140 million, accounting for 60% of the DeFi lending market. Now, the question of how it got to where it is today is hotly debated on its governance forums: the founding companies and the DAO’s most influential representatives have released competing narratives of the same history. Neither party is a neutral party, and both have significant governance rights and financial interests in the resolutions that will be voted on by token holders.

The following is based on the original documents and restores the full picture of the incident.

Proposal content

On February 12, Aave Labs released a framework proposal called "Aave Will Win." According to the proposal, 100% of the protocol’s product revenue will belong to the DAO, and Labs requires $42.5 million in stablecoins and 75,000 AAVE tokens as financial support in the first year, with a total value of approximately $51 million. The funding, which represents 31.5% of the total value of the agreement's treasury and 42% of non-AAVE reserves, will be allocated entirely to a single service provider through a bundled vote.

The framework also proposes to formally identify V4 as the future technical version of the protocol, suspend V3 new feature development, and plan to eventually deprecate V3. V4 is currently still in the testnet stage, and all of Aave’s revenue is generated by V3.

Before the snapshot voting, community feedback requested: disclosure of relevant wallets, establishment of a foundation structure before disbursing funds, and linking V3 deprecation to V4 adoption milestones. But the vote went ahead without mandatory commitments to any of the above.

Two narratives

On February 25, two posts appeared on the Aave governance forum within a few hours.

Aave Labs publishes a contribution report. Their narrative is: Every protocol version, flash loan, eMode, security module, GHO, front-end interface and brand from V1 to V4 were created by them. Since 2017, more than 570,000 lines of code have been written. On the issue of revenue attribution, their position is that the underlying architecture supporting various strategies stems from their original design, and attributing revenue to any single contributor distorts how layered protocol development actually works.

ACI founder Marc Zeller released a financial breakdown. According to his data, Aave Labs has received a total of $86 million in funding, including a 2017 initial coin offering, venture capital, DAO payments, and exchange fees that he said were transferred from the DAO without a governance vote. He tracked that 23% of the token supply is distributed among 52 wallets tied to Founder’s infrastructure. He calculated that Horizon, the institutional-grade real-life asset product launched by Labs, cost the DAO approximately $24 for every $1 of revenue earned—based on Merkl’s incentive expenditure of $4.2 million and receivable revenue of only $216,000. He cited six independent products that he believed had failed or remained unprofitable, and claimed that 98% of V3's revenue comes from code delivered by BGD Labs and other DAO service providers, rather than direct development by Labs.

Both sides’ arguments are well-founded and both have profit motives.

Core development team leaves

Eight days after the “Aave Will Win” framework proposal was released, BGD Labs announced that its contract would expire on April 1 and would not be renewed.

BGD developed versions V3.1 to V3.7, the liquidity eMode, and significant parts of the Aave governance infrastructure. The official reason for his departure was: Labs put pressure on V3 to promote V4, but failed to cooperate with BGD on V4 development and imposed what BGD called "artificial restrictions" on V3 improvements. The team that wrote the code that powers all of Aave’s current revenue decided that the current environment was no longer suitable for them to continue working. They promised to provide security services for two months in response to major incidents, and will withdraw completely after June.

Market background

The AAVE token price is down approximately 32% since the brand ownership dispute broke out in December 2025. During the same period, Morpho, which waives protocol fees, rose by approximately 42%. It is difficult to fully distinguish whether governance uncertainty is driving this divergence or whether other factors dominate. One thing is certain: Aave has $140 million in annual revenue and is executing buybacks, but its token has lagged its direct competitors by more than 70 percentage points in two months.

The core of the controversy

Controversial data aside, the core argument is straightforward: Aave Labs is the originator of the protocol, and they believe they should receive continued financial support commensurate with their contributions. A coalition composed of several DAO representatives believes that Labs is just one of many service providers and should be held to the same accountability standards as other parties.

Both positions are logically consistent. Rather than being dysfunctional, the tension between the two parties is a sign that something unusual is happening to Aave.

Most DeFi protocols do not have this problem. The founding teams of most protocols also play the role of DAO, leading decision-making and receiving funds. In most cases, so-called governance is just a formality. Aave is completely different: it has a real ecosystem of technically capable and financially independent service providers (BGD, ACI, Chaos Labs, TokenLogic) that can truly challenge the founding team’s proposals. This is extremely rare. Building such a distributed contributor infrastructure is extremely difficult, and most protocols have never been implemented.

This conflict exists precisely because "Aave" is itself successful, no matter how you define it.

The question now is whether the DAO can recognize what it has before voting. BGD's departure is the clearest sign of risk. If the governance environment evolves to exodus the best independent contributors as the Labs roadmap squeezes out every other space, then the distributed model that makes Aave stand out may begin to unravel.