The post Aave hits breaking point as DAO and Labs clash over control appeared on BitcoinEthereumNews.com. A dispute over who “owns” Aave is raging within the DeFiThe post Aave hits breaking point as DAO and Labs clash over control appeared on BitcoinEthereumNews.com. A dispute over who “owns” Aave is raging within the DeFi

Aave hits breaking point as DAO and Labs clash over control

A dispute over who “owns” Aave is raging within the DeFi community.

The issue flared up on Friday, sparked by the realization that in-platform swaps now funnel revenue previously destined for the DAO treasury, to Aave Labs.

Aave Labs Founder, Stani Kulechov, believes that, as owners of the “product” (the aave.com interface), Labs should be free to monetize it as it sees fit.

Last month, Aave Labs announced a consumer-facing app with all crypto references stripped away.

Representatives of Aave DAO, however, insist that there’s more to the brand than the website and logo. Indeed, they argue that trust in the battle-tested, underlying Aave protocol, asset selection and risk management is thanks to the DAO.

The swaps discussion may have kicked things off, but Aave now faces more pressing questions of ownership under a hybrid Labs/DAO structure.

Read more: Justin Sun’s Poloniex and HTX withdraw huge amounts from AAVE

Aave: DeFi’s top dog

A lending platform with over $30 billion of total value locked, Aave is DeFi’s largest application. Its healthy revenue reflects its popularity, at over $100 million per year, according to DeFiLlama data.

The vast majority of this revenue comes as a portion of borrower interest. The estimated shortfall in swap revenue makes up around 1% of the total — not exactly existential.

Trouble behind the scenes isn’t uncommon in DeFi, where many upstart DAOs struggle to outlive a single cycle. Quarreling between tokenholders, developers and early investors often boils down to who is able to exit before the seemingly inevitable bleed to zero.

However, the sector sees Aave as one of the most effective and sustainable examples of the DAO model.

It outsources specialist work to service providers who the DAO pays to, for example, advise on risk parameters, asset selection or treasury management, before tokenholders vote on implementation.

In addition to operational work, the DAO also pays for development. This could include the $16 million paid to Aave Labs (then Aave Companies) retroactively for v3 development, and $12 million paid to Labs to produce Aave v4.

The former of these included front-end engineering, and the latter “a new visual identity.”

Read more: Is Aave’s ‘Balance Protection’ backed by Relm — an FTX insurer?

DAO and Labs: why two entities?

In the face of regulatory uncertainty, many DeFi projects decided to separate the token-governed DAO from a legal “wrapper.”

While this may have kept projects safe from Gensler’s aggressive SEC, the disconnect between the entities brings new conflicts, especially now the regulatory landscape feels less dicey.

Longtime Aave contributor Ernesto Boado highlights that, in effect, “Aave” is an entire ecosystem of service providers (past and present), tokenholders, Labs, auditors, and more.

A testament to decentralized cooperation, perhaps, but such a melting pot of contributors and stakeholders further complicates the picture.

He claims that responsibility for maintenance of the user interface from 2022 onwards wasn’t well defined.

In addition, in taking on the task without requesting a budget, Aave Labs skipped the accompanying governance discussion which would lend legitimacy to its claim over the product.

Read more: Justin Sun defends HTX while it lends 92% of its USDT on Aave

Which way forward?

Kulechov states that the most important factor for tokenholders is “growth and revenue over time.”

Products such as the recently announced Aave app, and improved user-friendliness of the front-end are growth-focused. As the protocol grows, so will revenues, both to the DAO and to Labs.

Aave Chan Initiative’s Marc Zeller says all parties need clarity on “when you own AAVE, what do you actually own?”

“Cyberpunk lawyer” Gabriel Shapiro sees two options, making the DAO into a legal-entity, or opting for an alegal DAO with formalized “accountability and rules for DAO-adjacent entities,” or a BORG system.

It remains to be seen whether Aave finds a way to resolve the debate amicably. If not, a period of long-term alignment may devolve into a Uniswap-style rivalry between Labs and tokenholders.

Recently, Uniswap opted to “UNI-fy” the project, turning on UNI’s long-awaited fee-switch after years of waiting. However, the move itself also proved controversial.

Whatever the future holds for the relationship between Aave’s DAO and Aave Labs, given its maturity, size, and influence in the DeFi sphere, the outcome is likely to set a precedent.

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Source: https://protos.com/aave-hits-breaking-point-as-dao-and-labs-clash-over-control/

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