Inside Aave’s governance battle as DeFi giant prepares for upgrade

Tech Share Share this article Copy link X icon X (Twitter) LinkedIn Facebook Email Inside Aave’s governance battle as DeFi giant prepares for upgrade In an interview with CoinDesk, Aave Labs CEO Stani Kulechov reflected on the governance debates in the Aave ecosystem, as well as what’s to come for the network. By Margaux Nijkerk | Edited by Nikhilesh De Mar 29, 2026, 1:00 p.m. Make preferred on What to know : In an interview with CoinDesk, Aave Labs founder Stani Kulechov framed ongoing governance disputes and contributor exits as part of a natural evolution, as the community debates how decentralized the protocol should remain versus becoming more coordinated. The protocol is also preparing for its v4 upgrade, which is expected to expand Aave beyond crypto-native lending into broader financial use cases, including real-world assets and institutional markets. For months, Aave, one of decentralized finance’s (DeFi) largest lending protocols, has been at the center of a very public debate about what it is supposed to be. At the core, much of the community wants the network to be a decentralized financial layer governed by token holders, while a fraction of it warns that it is evolving toward a more coordinated model shaped by major contributors. In simple terms, the debate is about whether Aave should remain a neutral, open platform anyone can build on, or move toward a more structured model where key contributors play a bigger role in shaping products and capturing revenue — a shift that could impact how decentralized the protocol is and who benefits from its growth. After a turbulent stretch marked by governance disputes, contributor exits and a sweeping strategic overhaul, the founder of the main developer firm supporting the network, Stani Kulechov, is framing the moment not as a breakdown, but as a necessary evolution. “We’ve been doing this for almost a decade,” the Aave Labs founder told CoinDesk. “Finance is a big set of infrastructure… it takes time to replace.” A debate that started with fees The latest chapter began late last year with what seemed like a technical issue: interface fees. In December 2025, discussions over whether revenue generated by Aave’s front-end interfaces should flow back to the DAO — the decentralized autonomous organization that the decentralized autonomous organization that oversees Aave’s governance and treasury — exposed deeper disagreements about value capture. The DAO pushed back against proposals that would divert fees away from its treasury, surfacing tensions over incentives and control that had been building for years. Those tensions escalated in February when Aave Labs introduced a proposal called “Aave Will Win.” At its core was a simple idea: all revenue generated by Aave-branded products should ultimately flow back to the DAO. The proposal leaned toward a more coordinated approach between the protocol and the products built around it. “We’re becoming token-centric… but we recognize the value comes from both the protocol layer and the product layer,” Kulechov said. Aave Labs is a key development contributor but does not control the DAO, which is governed by token holders; however, its proposals and products can influence how value flows through the ecosystem, including revenue directed to the DAO treasury. Rather than resolving tensions, the proposal intensified them. In early March, the Aave Chain Initiative (ACI), one of the DAO’s most active governance groups, announced it would shut down after clashing with Aave Labs over the plan. The group had driven a majority of governance activity over the past several years, making its departure particularly notable. The dispute centered on concerns that the proposal blurred the line between independent DAO governance and the influence of major contributors. Some critics argued that the voting process raised questions about how decentralized decision-making truly is in practice. ACI’s exit followed the earlier departure of BGD Labs, a key engineering contributor behind Aave v3, which cited strategic disagreements. Together, the moves highlighted a recurring tension in decentralized systems: while protocols are governed onchain, much of the development and coordination still depends on a relatively small group of contributors. Kulechov, however, sees the churn as part of a normal cycle. “I don’t think it changes much… this is very normal,” he said, pointing to similar transitions throughout Aave’s history. A technical upgrade in the background Running parallel to the governance overhaul is Aave’s next major protocol upgrade, known as v4. The upgrade has been in development for roughly two years and is now nearing launch after an extended period of security testing and governance review. While separate from the recent governance disputes, it represents one of the most significant technical changes to the protocol to date. At a high level, v4 is expected to introduce a more modular architecture that allows new use cases and integrations to be built more easily on top of Aave’s core infrastructure. The design also aims to improve capital efficiency and expand the types of assets that can be used within the protocol. While v4 itself has not been the central point of dispute, its rollout comes as the DAO continues to debate how value generated from new products and infrastructure should be distributed across the ecosystem. Its rollout comes at a moment when Aave is not just refining its governance and economic model, but also upgrading the underlying system itself — setting the stage for its next phase of growth. DeFi’s next phase The debate around Aave comes as the broader DeFi sector faces renewed scrutiny. After the explosive growth of previous cycles, activity has cooled, and questions about the sector’s long-term relevance have resurfaced. Critics point to governance disputes and declining yields as signs that the model may be faltering. Kulechov disagrees. “DeFi is stronger than ever,” he said, pointing to tens of billions in deposits still locked across the ecosystem. What is changing, he argues, is where growth will come from. Rather than purely crypto-native use cases, the next phase of DeFi is likely to be driven by real-world financial activity — from institutional lending to tokenized assets. “Every bank has a digital asset team,” he said. “Once you tokenize assets, you need utilities.” In that vision, DeFi doesn’t replace traditional finance overnight. Instead, it becomes part of its infrastructure — embedded in the backend of fintech platforms and financial institutions.’ Aave’s recent governance disputes and contributor changes highlight an ecosystem in transition. Efforts to evolve the ecosystem have introduced new coordination challenges, even as they reflect a broader shift across DeFi where protocols try to align with the applications built on top of them. “This is just part of building better financial systems,” Kulechov said. 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