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Tell me about the AAVE token alignment proposal and why is it so controversial

Aave Token Alignment Proposal and Controversy

The Aave token alignment proposal is a high-stakes governance initiative aimed at transferring ownership and control of the Aave brand assets from Aave Labs (the development company) to the Aave Decentralized Autonomous Organization (DAO) 123. The controversy stems from a fundamental dispute over revenue, control, and the structural roles of the DAO versus its associated private entity, Aave Labs 14.
Aave is a liquidity management protocol that allows users to borrow and lend crypto assets on supported networks like Ethereum, Avalanche, and Arbitrum .

Details of the Token Alignment Proposal

The proposal, authored by Ernesto Boado of BGD Labs, is titled "Aave Token Alignment Phase 1 - Ownership" 12. Its core objective is to grant AAVE token holders control over Aave’s brand assets and user-facing applications via a DAO-controlled vehicle with "strong anti-capture protections" 12.
The proposal specifies that the DAO should oversee and own the following assets 2:
  • Naming Rights: Control over the use of "Aave" in product and organization names, such as "Aave Labs," "Aave App," "Aave Pro," or "Aave Horizon" 2.
  • Communication Channels: Ownership and control over all communication channels using "Aave" or implicitly associated names 2.
  • Domains: Ownership and control over domains, including aave.com 2.
  • Online Organizations: Ownership over online organizations like GitHub or npm 2.
The initiative is viewed by supporters, including the Aave Chan Initiative (ACI) founder Marc Zeller, as crucial for the future of the DAO model and a "natural next step in Aave’s decentralisation" 163.

The Controversy and Conflict with Aave Labs

The proposal escalated into a major governance dispute due to several factors, primarily concerning the alleged "stealth privatization" of revenue streams by Aave Labs 76.

1. Revenue Redirection Dispute

The controversy was initially sparked by Aave Labs' integration of CoW Swap into the user interface, which resulted in swap-related fees being redirected away from the DAO treasury to Aave Labs 89.
  • Alleged Revenue: The new CoW Swap revenue stream was estimated to be over $10 million annually, significantly higher than the $1.1 million generated by the previous provider, Velora, in 2025 8.
  • Aave Labs' Stance: Aave Labs defended its actions by asserting that the protocol (governed by the DAO) is separate from the interface (operated independently by Labs), and Labs retains discretion over application-level monetization 9. Aave co-founder Stani Kulechov argued the fees were legitimate as they "sit entirely outside the protocol the DAO stewards" 1.
  • Critics' Stance: Critics argued that monetization from the frontend, which was developed with DAO-funded resources, should benefit the DAO treasury 9. Marc Zeller argued that the DAO has already paid for the brand assets multiple times through various funding mechanisms 4.

2. Unilateral Snapshot Vote and CEO Opposition

The controversy intensified when Aave Labs unilaterally submitted the proposal for a Snapshot vote, which was scheduled to take place from December 23 to December 26, 2025 2.
  • Procedural Criticism: The proposal's original author, Ernesto Boado, claimed the submission was done without his consent and "breaks all codes of trust," urging token holders to vote "Abstain" if they believe in governance procedures 2710.
  • "Hostile Takeover" Allegations: Prominent delegate Marc Zeller characterized the move as "interference in the DAO governance process" and a "hostile takeover attempt by Labs," criticizing the timing during the holiday period as a strategic attempt to sabotage the process 11710.
  • CEO's Vote: Aave CEO Stani Kulechov publicly stated that he would vote 'no' on the proposal 1110.

3. Market Reaction

The escalating internal conflict coincided with a sharp decline in the AAVE token price 117.
  • The AAVE price fell 17% since the proposal was first floated on December 16, 2025 11.
  • The token dropped over 10% in the 24 hours leading up to December 22, 2025 7.
  • On-chain data showed a whale sold $37.8 million in AAVE amidst the conflict 11.
Between December 16, 2025, and December 23, 2025, the price of AAVE dropped from an opening price of $192.90 on December 16 to a closing price of $152.60 on December 23 12. The lowest price recorded during this period was $148.20 on December 22 12.
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