AAVE Governance Dispute Sparks Whale Sell-Off and Raises DeFi Governance Concerns

According to Odaily, the leading decentralized finance lending protocol Aave has entered a period of governance turbulence, triggering internal debate, market volatility, and a major whale sell-off that has drawn attention across the DeFi sector.

The controversy originated from a recent operational change by Aave Labs, which altered the routing of swap transactions on Aave’s front end. The protocol shifted from ParaSwap to Cow Swap, a move that effectively redirected a portion of swap-related revenue away from the Aave DAO treasury and toward Aave Labs itself. Community members quickly identified the impact, estimating that the change could divert roughly $200,000 per week in fees, or more than $1 million annually, away from DAO-controlled funds.

This development reignited a long-standing debate over revenue ownership and governance boundaries within decentralized protocols. Many DAO participants argued that protocol-generated income should belong to token holders rather than the development team, especially given Aave’s positioning as a mature, decentralized DeFi platform. Others defended the change as necessary for long-term development sustainability.

In response to growing dissatisfaction, former Aave CTO Ernesto Boado submitted a governance proposal aimed at transferring control of key Aave brand assets—including domains, social media accounts, and naming rights—to the Aave DAO. Supporters viewed the proposal as a way to reinforce decentralization and protect the DAO’s long-term interests, while critics warned that such a move could complicate operational efficiency and legal responsibility.

Shortly after governance tensions escalated, the second-largest AAVE token holder executed a large sell-off, liquidating approximately 230,000 AAVE tokens. The sale, valued at around $38 million, was reportedly completed at a significant loss compared to the whale’s original acquisition cost. The transaction added downward pressure to the AAVE price and was widely interpreted as a signal of declining confidence among large investors amid governance uncertainty.

The Aave situation highlights broader structural challenges facing the DeFi industry as protocols mature and generate substantial revenue. Questions around who controls protocol income, intellectual property, and brand value are becoming increasingly central to DAO governance discussions. As decentralized platforms grow more complex, balancing community ownership with efficient development remains a key unresolved issue.

An ARFC snapshot vote has since been initiated, allowing the wider AAVE community to express its position on the proposed governance changes. The outcome is expected to influence not only Aave’s future governance structure but also set a precedent for how other DeFi protocols handle revenue sharing, DAO authority, and team accountability.

As market participants closely monitor the vote, the Aave governance dispute is increasingly seen as a defining case study for the next phase of decentralized finance governance.