Aave Governance Crisis and Token Value Reassessment: A Long-Term Investment Perspective

The governance disputes faced by the Aave community are not merely issues of governance processes but signify a critical turning point that questions the balance between the commercialization of DeFi protocols and decentralized management. Looking at the voting results surrounding the ARFC proposal, the community’s opinions are deeply divided, with opposition votes reaching 64.15% (approximately 494,800 tokens) against the proposal to directly manage brand assets via DAO. The long-term impact of this decision on Aave’s competitiveness and investment value is a key concern for current market participants.

The Essence of Governance Conflict: Clash Between Business Operations and Community Authority

The fee outflow issue caused by the integration of CoW Swap introduced by Aave Labs appears, on the surface, to concern transparency of protocol revenue. However, at its core, it reflects contradictions within Aave’s organizational structure during its expansion phase. The question of who should control intangible assets such as frontend operations, domain names, social media accounts, and branding rights has become prominent, especially after a formal proposal was introduced by a former CTO of Aave Labs, now co-founder of BGD Labs. This has sharply highlighted the boundaries of authority between the DAO and Labs.

As of the Snapshot vote starting on December 22, the community’s voting composition shows 494,800 opposition votes, 253,400 abstentions (32.85%), and 23,200 support votes (3.01%). This indicates a cautious attitude toward rapid asset transfer via governance. The timing of the vote overlapping with Christmas holidays also raises concerns about reduced governance participation and the depth of discussion.

Market Response and Actual Risks: On-Chain Transaction Implications

Market reactions to governance uncertainty were swift. On December 22, large long-term on-chain addresses holding AAVE split and sold 230,000 tokens, shifting their positions into stETH and WBTC. This action caused AAVE’s price to drop approximately 10% in a short period, adjusting to around $156.

Currently, the AAVE price is $162.15, with a 24-hour volatility of -6.19%, a circulating market cap of $2.46 billion, and a circulation of over 15.18 million tokens nearing the supply cap. Market interpretation suggests that this sale does not fundamentally negate the protocol’s intrinsic value but is a phased risk mitigation response to governance process uncertainty, maintaining confidence in Aave’s core competitiveness.

Strategic Outlook for 2026: Beyond Governance Turmoil to Implementation Plans

Founder Stani Kulechov recently outlined three major strategies for 2026, indicating a long-term perspective beyond short-term governance disputes.

The first pillar is the full deployment of Aave V4. By unifying cross-chain liquidity through a Hub-Spoke architecture, it aims to resolve capital fragmentation across different public blockchains and improve liquidity efficiency.

The second pillar is scaling Horizon RWA. Currently with a net deposit balance of $550 million, Horizon plans to collaborate with institutions like Circle, Ripple, and Franklin Templeton within 2026 to introduce global asset classes such as U.S. Treasuries, ETFs, and commodities onto-chain, targeting a $1 billion scale. Success in this area will directly impact Aave’s protocol size and cash flow generation capabilities.

The third pillar is expanding Aave App adoption. By transforming complex lending operations into simple savings applications on mobile platforms, this initiative aims to bring DeFi to mainstream users.

Fundamental Value Foundation of Aave: Robustness of TVL and Market Position

Currently, Aave’s TVL exceeds $33 billion, holding about 60% of the entire DeFi lending market, establishing its position as the largest and most mature decentralized lending protocol. This advantage is not temporary but results from years of technological innovation and market validation.

In December 2025, the U.S. SEC officially concluded a multi-year investigation into Aave without taking enforcement action. This development reduced compliance uncertainties and paves the way for Aave’s evolution from a crypto-native DeFi protocol to a broader on-chain financial infrastructure capable of serving institutional and general users.

Economic Value Structure of AAVE Token: Linking Governance and Revenue

With a total supply of 16 million tokens and a circulating supply of 15.18 million nearing the cap, the scope for new inflation is limited. In this environment, AAVE’s value heavily depends on its functional positioning—particularly its governance rights, risk-bearing mechanisms, and the protocol’s cash flow distribution.

In governance, AAVE embodies voting rights for Aave DAO members, directly influencing the review and approval of ARFC proposals. Regarding risk and return, the upgrade of the Umbrella module aims to provide stakers—who bear systemic risks through the security module—with opportunities to share in interest and fee income generated from V4 structures and RWA-related business.

In terms of value capture, Aave has institutionalized a “buyback and distribute” strategy, using the protocol’s net income from lending activities to repurchase AAVE in secondary markets and distribute to protocol contributors and stakers. This creates a direct link between token value and the protocol’s cash flow performance.

Comparison with Competitive Environment: Divergence from Uniswap’s UNIfication Strategy

A notable example in the maturity stage of DeFi protocols is Uniswap’s recent UNIfication proposal. Uniswap has established clear, actionable mechanisms such as enabling fee switch activation, reintroducing fees via DAO approval, and continuous token burn of UNI, directly tying UNI’s economic value to actual trading volume and fee income. This strategy institutionalizes the alignment of team and community interests.

In contrast, Aave’s current situation shows it faces similar challenges but has yet to establish consensus in governance processes. Fundamental issues such as asset attribution, revenue sharing models, and balancing team incentives with decentralized governance remain unresolved. Whether Aave can develop clearer, more implementable solutions than Uniswap will significantly influence its future competitive position.

Insights from Governance Crisis: Long-term Investment Value of Aave

In the short term, current governance uncertainties exert downward pressure on AAVE’s token price. However, from a fundamental competitiveness perspective, several structural advantages remain intact:

• TVL exceeding $33 billion
• Dominant market share of 60%
• Growth potential through V4 implementation and RWA integration
• Strengthened positioning as on-chain financial infrastructure

These elements are unlikely to be fundamentally undermined by short-term governance turmoil.

Nevertheless, if governance disagreements persist long-term, leaving authority and responsibility ambiguous, even technological and liquidity advantages could gradually erode due to organizational and systemic uncertainties, leading to a decline in competitive edge.

How the Aave community addresses these challenges will be crucial, as it will influence investor confidence as much as the protocol’s intrinsic value creation ability. Clarifying governance structures and institutionalizing execution mechanisms will be pivotal in maintaining Aave’s sustainable competitive advantage.