Aave Labs proposes sending 100% of protocol revenue to DAO in exchange for funding

Aave Labs has proposed directing 100% of product revenue to the Aave DAO treasury, a move that appears to be looking to quash a recent conflict between the pro-profit R&D firm and the community-led decentralized autonomous organization, and set the largest decentralized lending protocol up for future growth.

In a non-binding “temperate check” on Thursday, Aave Labs asked to see if the DAO would ratify a new “Aave Will Win Framework” that seems to recenter token holders as the core beneficiaries of the Aave protocol.

Under the proposal, Aave Labs is looking to direct 100% of revenue from Aave-branded products — including swap fees from the Aave v3 and upcoming v4 protocols, as well as aave.com frontend earnings and other future business lines like the Aave Card and AAVE ETF — to the Aave DAO treasury.

It also proposed spinning up a new Aave Foundation to house Aave trademarks and IP.

While the proposal would see a radical reshaping of the Aave ownership landscape, representing a true experiment with DAO management over a multi-billion-dollar brand, it has already drawn criticism. Aave Labs has proposed giving up its revenue model, but is it truly losing out?

“I want to cut through the attempted gaslighting now,” Marc Zeller, founder of the Aave Chan Initiative and influential member of the Aave DAO, wrote in response. “We’ve seen this playbook before: open with egregious terms, absorb backlash, then reframe a smaller ask as ‘the reasonable middle ground’ while still extracting a massive amount.”

Beginnings of the debate

The move comes after months of consternation in the Aave community regarding the true ownership of Aave, the DAO, which has largely shepherded the lending protocol since its governance token launch, or Aave Labs, the startup that initially built the brand.

Last December, Aave Labs sparked debate within the Aave community after redirecting swap fees from the official aave.com interface that previously funded the Aave DAO treasury to a private wallet controlled by the company.

In response, a token holder proposed a “poison pill” takeover to seize Aave Labs’ IP, code, brand assets, and equity. This bid to essentially turn the company into a DAO subsidiary failed a governance vote over the holidays. However, it seemingly inspired Aave Labs CEO Stani Kulechov to open discussions about a revenue- and brand-sharing agreement.

Notably, this all comes as Aave Labs has gone through a major restructuring, including sunsetting its non-lending-related web3 projects housed under the Avara brand. The startup sold Lens, its social media protocol, and is winding down its Family wallet as it looks to double down on DeFi.

Aave V4

A key component of the Aave Will Win Framework is the rollout of Aave v4, an upgraded protocol that has been in development for years. Aave Labs notes V4’s architecture “unlocks revenue streams that are not easily possible in previous Aave versions,” with that capital also expected to flow to the DAO.

This includes a new “hub and spoke model” that “can extend Aave into a new market or use case, with its own risk parameters and revenue model,” thereby expanding the protocol’s business lines. For context, Aave V3 has generated over $100 million in annualized revenue.

The proposal asks for Aave Labs and the DAO to coordinate on V4 development, while deprioritizing new feature development for V3. In the temp check, Aave Labs floated a slow winddown of V3 beginning 8-12 months after V4 launches, including parameter adjustments to encourage migration to the new protocol.

Aave Labs said a separate proposal will follow for “V4 protocol activation, the launch setup, etc.”

Funding or feeding?

Aave Labs is offering to give up all its revenue streams and brand assets to the DAO and a new foundation. As part of the plan, the company is asking for the DAO to commit to a funding model to cover its operating expenses, to the tune of $25 million in stablecoins and 75,000 AAVE and other funding grants for targeted product launches.

In particular, the ask is for $5 million paid upfront with $20 million streamed over the course of the year, and 75,000 AAVE to be unlocked linearly monthly over the next two years. Labs also requested three $5 million grants to fund development and marketing for the planned Aave App, Aave Pro, and Aave Card launches, and an additional $2.5 million for Aave Kit.

Although Labs would go from being “self-funded,” the proposal notes “the funding requested is a significant expansion of scope beyond historical funding.”

“To date, Aave Labs has largely self-funded the cost of building and scaling the product layer, seeking DAO support mainly for core protocol development and focused marketing. This proposal secures the investment needed to stay competitive and continue innovating over the next decade,” the proposal reads.

While the request is “substantial,” the proposal notes that much of this funding is conditioned on Aave Labs producing verifiably valuable work. Each year’s budget will also require a separate governance vote, “giving the DAO ongoing oversight of how funds are allocated.”

“Under this framework, the DAO is choosing to fund a wider operational scope directly, including product engineering, go-to-market execution, product-relevant legal and compliance work, and business development,” Aave Labs wrote, noting the company “historically … subsidized a broad range of activities.”

While the conversation has just started, Zeller, a powerful figure at the DAO, has framed Aave Labs’ ask as a $50 million extraction attempt, allegedly proposed without any prior conversations between Labs and the DAO.

“Let’s be honest about where we are: Labs is acting as if it can impose outcomes regardless of governance process,” Zeller wrote. “If token holders are comfortable with that, so be it, but I’m not going to pretend this is healthy governance.”

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