Aave founder declares 'zero room for friction' as DAO orgs accuse his firm of grabbing power

The Decentralised

Aave founder celebrates DAO vote.
Three DAO service providers announced they will leave the organisation in the leadup to it.
They say that Aave Labs is taking control of the DAO.

A version of this article appeared in our The Decentralised newsletter on April 14.

GM, Tim here.

On Sunday, Aave creator and Aave Labs CEO Stani Kulechov made a bold proclamation: Aave will win.

Aave DAO, the cooperative that governs the $45 billion DeFi lender, had just passed a landmark vote that redefines its relationship with Kulechov’s company.

In exchange for the DAO providing funding to Aave Labs, starting with a whopping $25 million in stablecoins and 75,000 AAVE tokens, the firm will direct 100% of revenue from Aave-branded products directly to the Aave DAO treasury.

It addresses a months-long argument between the DAO and Labs over who should receive revenue from a swap feature on the Aave website, the main way to access the lending protocol.

There’s just one snag.

Three of Aave DAO’s biggest service providers — organisations that have been with the DAO for years — announced their intention to break from the collective in the leadup to the vote.

While each organisation has specific reasons for leaving, their complaints follow a common theme: a dislike of what they call a growing centralisation of power around Aave Labs.

Aave stablecoin GHO has struggled to keep its peg with the US dollar. A team tasked with bringing it to peg is on the cusp of meeting its one-month goal.

Aave governance firm exits $27bn DeFi giant as protracted power struggle deepens

After weeks of back-and-forth, the Aave Chan Initiative is...After weeks of back-and-forth, the Aave Chan Initiative is ending its work on the $27 billion lending protocol, Aave.

Aave DAO departures

The Aave DAO strife comes as DeFi lenders compete to woo institutions dipping their toes into onchain finance.

Many protocols are compromising on decentralisation, openness and transparency in order to make themselves more attractive to investors used to the closed, permissioned world of traditional finance.

The question is if Aave is among the projects trading away those crypto ideals.

For Marc Zeller, founder of Aave DAO service provider Aave Chan Initiative, the answer is a resounding yes.

He slammed Aave Labs’ request for DAO funding, arguing that it didn’t meet the same transparency standards that his organisation and other service providers hold themselves to.

“We spent three years building a culture of accountability inside the Aave DAO,” Zeller said in a post on the Aave governance forum announcing ACI’s departure from the DAO. “When we applied those same standards to the entity requesting the largest budget in DAO history, the system stopped working.”

What’s more, Zeller and other DAO delegates have criticised Aave Labs employees for using their voting power to influence the Labs funding vote.

Zeller isn’t the only critic of Aave Labs’ perceived control over the DAO.

“Aave Labs believes that the whole Aave DAO and contributors should pivot in the direction they believe in, without sufficient consideration of existing contributors’ expertise,” said BGD Labs when it announced plans to cease contributions to Aave in February.

Aave targets institutions and $19bn real-world asset market with new ‘Horizon’ initiative

Aave price tumbles as ‘most productive’ contractor leaves DAO

Aave’s civil war has its first casualty. Aave’s civil war has its first casualty.

‘No room for friction’

Kulechov’s response seems to affirm the concerns of the DAO’s service providers.

“The DAO is taking a zero-bureaucracy approach,” he said in his Aave will win post. “There is zero room for friction.”

It sounds like Kulechov is saying the quiet part out loud.

Most proponents say DAOs are meant to function like a democracy. Token holders entrust their voting power to delegates who propose protocol changes and debate them in an open forum.

Delegates often disagree, and that’s recognised as healthy. Debate fosters intellectual growth, sparks innovation, and prevents groupthink, ultimately leading to better decision-making, so the argument goes.

So, if there’s no room for “friction,” as Kulechov puts it, is Aave DAO really a democracy, or something else?