Inside Aave’s governance conflict as DeFi leader readies for enhancement

In a discussion with CoinDesk, Aave Labs CEO Stani Kulechov shared insights on the governance discussions within the Aave ecosystem, along with future developments for the network.

What to know:

• In a conversation with CoinDesk, Aave Labs founder Stani Kulechov characterized the ongoing governance issues and contributor departures as part of a natural progression, as the community contemplates the balance between decentralization and coordination.
• The protocol is also gearing up for its v4 upgrade, anticipated to extend Aave’s functionality beyond crypto-focused lending into wider financial applications, including real-world assets and institutional markets.

For several months, Aave, a leading protocol in decentralized finance (DeFi), has been the focus of a well-publicized discussion regarding its intended direction.

Fundamentally, a significant portion of the community desires the network to function as a decentralized financial layer governed by token holders, whereas a smaller group cautions that it is shifting towards a more coordinated model influenced by key contributors.

Essentially, the debate revolves around whether Aave should maintain its status as a neutral, open platform for development or transition towards a more organized model where influential contributors have a greater role in shaping products and generating revenue — a change that could affect the protocol’s decentralization and the beneficiaries of its expansion.

Following a tumultuous period characterized by governance disputes, contributor departures, and a significant strategic restructuring, Stani Kulechov, the founder of the principal developer firm backing the network, is viewing the situation as a necessary evolution rather than a failure.

“We’ve been doing this for almost a decade,” the Aave Labs founder remarked to CoinDesk. “Finance is a large set of infrastructure… it takes time to replace.”

A debate that started with fees

The latest developments began towards the end of last year with what appeared to be a technical matter: interface fees.

In December 2025, conversations regarding whether the revenue from Aave’s front-end interfaces should return to the DAO — the decentralized autonomous organization that governs Aave’s operations and treasury — revealed deeper conflicts about value capture. The DAO resisted proposals that would redirect fees away from its treasury, highlighting long-standing tensions over incentives and governance.

These tensions intensified in February when Aave Labs proposed an initiative titled “Aave Will Win.”

At its essence was a straightforward idea: all revenue generated by Aave-branded products should ultimately revert to the DAO. The proposal favored a more coordinated relationship between the protocol and the associated products. “We’re becoming token-centric… but we recognize the value comes from both the protocol layer and the product layer,” Kulechov stated.

Aave Labs is a significant development contributor but does not govern the DAO, which is led by token holders; however, its initiatives and products can impact the flow of value within the ecosystem, including revenue allocated to the DAO treasury.

Instead of resolving conflicts, the proposal exacerbated them.

In early March, the Aave Chain Initiative (ACI), one of the DAO’s most engaged governance groups, declared it would cease operations following disagreements with Aave Labs over the proposal. This group had been responsible for a majority of governance activities over the past few years, making its exit particularly significant.

The contention revolved around concerns that the proposal blurred the distinction between independent DAO governance and the sway of significant contributors. Some critics argued that the voting mechanism raised doubts about the true decentralization of decision-making.

ACI’s departure followed the earlier exit of BGD Labs, a key engineering contributor for Aave v3, which cited differences in strategy. Collectively, these departures underscored a recurring tension in decentralized systems: although protocols are governed onchain, much of the development and coordination still relies on a relatively small cohort of contributors.

Kulechov, however, views the turnover as part of a standard cycle.

“I don’t think it changes much… this is very normal,” he stated, referencing similar transitions throughout Aave’s history.

A technical upgrade in the background

Running concurrently with the governance changes is Aave’s upcoming major protocol upgrade, known as v4. This upgrade has been under development for approximately two years and is nearing launch after a prolonged period of security assessments and governance evaluations. While separate from the recent governance conflicts, it signifies one of the most important technical advancements for the protocol thus far.

At a high level, v4 is expected to introduce a more modular framework that facilitates the development of new use cases and integrations on top of Aave’s foundational infrastructure. The design also aims to enhance capital efficiency and broaden the array of assets that can be utilized within the protocol.

Although v4 itself has not been the focal point of contention, its implementation occurs during a time when the DAO is still deliberating how to allocate value generated from new products and infrastructure across the ecosystem.

Its implementation aligns with Aave’s efforts to refine not only its governance and economic framework but also the underlying system itself — paving the way for its next growth phase.

DeFi’s next phase

The discussions surrounding Aave coincide with a broader examination of the DeFi sector.

Following the rapid expansion of prior cycles, activity has slowed, and concerns regarding the sector’s long-term significance have emerged again. Critics highlight governance disputes and diminishing yields as indicators that the model may be struggling.

Kulechov contests this perspective. “DeFi is stronger than ever,” he stated, noting that tens of billions remain locked within the ecosystem.

What is changing, he asserts, is the source of growth. Rather than being driven solely by crypto-native use cases, the next phase of DeFi is likely to be fueled by real-world financial activities — ranging from institutional lending to tokenized assets.

“Every bank has a digital asset team,” he indicated. “Once you tokenize assets, you need utilities.”

In this perspective, DeFi does not immediately replace traditional finance. Instead, it integrates into its infrastructure — embedded within the backend of fintech platforms and financial institutions.

Aave’s recent governance challenges and contributor changes reflect an ecosystem undergoing transformation.

Initiatives to advance the ecosystem have introduced new coordination difficulties, even as they mirror a larger trend within DeFi where protocols strive to align with the applications built on them.

“This is just part of building better financial systems,” Kulechov remarked.

Read more: Aave labs proposes ‘Aave Will Win’ plan to send 100% of product revenue to DAO