Aave delegate, Labs tangle over conflict-of-interest proposal

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Tension between Aave Labs and the Aave DAO has quieted somewhat, as members of the latter await a promised revenue sharing proposal from Labs CEO and protocol founder Stani Kulechov.

But the two camps still snipe at each other, and it’s becoming hard to imagine a mutually satisfying resolution to their beef, given all the bad blood.

The latest example came last week, when Aave Chan Initiative, one of the most powerful delegates within the DAO, proposed a new conflict-of-interest policy.

That policy would require any recipient of Aave DAO funding to disclose the fact they had received, or plan to seek, such funding, and require abstention in any DAO matter presenting a conflict of interest.

The disclosure would have to include the addresses of any wallets that hold Aave voting power or delegated voting power.

“Without clear, consistent disclosure and COI norms, governance can drift into perceived capture or legitimacy debates that harm the DAO, the protocol, and the $AAVE token,” the proposal reads.

Such rules, it continues, would improve transparency, accountability, and “the perceived legitimacy of outcomes.”

Things get tricky when the proposal turns to enforcement, however. Voting restrictions can’t be “reliably enforced” onchain and would have to rely on peer pressure, according to ACI. The point is to avoid the edge cases that might arise while trying to programmatically enforce such a ban.

But the proposed enforcement mechanism has proven contentious. Any votes cast by someone with a clear conflict of interest wouldn’t count, according to the proposal.

“It must be treated as invalid for legitimacy purposes and excluded from any community-recognised ‘clean’ tally, quorum or outcome assessment, even if excluding it would change the result,” it reads.

Aave Labs employees rushed in to criticise the proposal as introducing a destabilising, subjective element to every vote.

Pseudonymous Labs employee Simo said the proposal would create a “parallel governance system with no rules, no finality, and no clear authority.”

They also highlighted the lack of a process for striking conflicted votes, the lack of a neutral arbiter, and the lack of thresholds that determine when a conflict of interest becomes “material.”

“In a mature DAO, almost every important decision materially affects all service providers,” they wrote. “In practice, this framework implies that, on the most critical decisions for the protocol, only small token holders with no direct involvement, limited context, and no touch with the Aave business would be able to vote.”

Kulechov weighed in yesterday, calling the topic important but the specific proposal “poorly written in all respects.”

“I will vote no on this proposal, in light of hoping to see a more reasonable and well-thought-out COI framework that actually makes sense,” he wrote.

Even some supporters suggested it needs to offer a more objective way of determining whether someone has a conflict of interest and when their vote should be excluded.

But ACI head Marc Zeller said that could all be worked out later.

“We need a quick patch now to mitigate the ‘slow motion coup’ the protocol is currently experiencing,” he wrote, “and it’s worth after this proposal to take time to implement something more future-proof.”

Voting began today and, as of 11 am New York time, “aye” votes were narrowly winning, 489,000 to 485,000.

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Aleks Gilbert is DL News’ New York-based DeFi correspondent. You can reach him at aleks@dlnews.com.