Aave DAO Rejects Proposal to Absorb Aave Labs IP

• Aave DAO rejects proposal to absorb Aave Labs' intellectual property and equity with 55.29% voting against
• Proposal followed allegations Aave Labs was privately appropriating swap fees from CowSwap-based interface
• Rejection occurs amid Extreme Fear market sentiment (20/100) with Bitcoin trading at $89,054
• Decision highlights ongoing tension between decentralized governance and centralized development entities

VADODARA, December 26, 2025 — The Aave decentralized autonomous organization has rejected a proposal to absorb the intellectual property and equity of its developer, Aave Labs, in a vote that saw 55.29% opposition. This daily crypto analysis examines the governance decision's implications for DeFi protocol sustainability and market structure during a period of extreme fear sentiment across cryptocurrency markets.

Market Context & Background

Market structure suggests DeFi governance proposals have become increasingly contentious as protocols mature beyond their initial development phases. The Aave proposal rejection mirrors similar tensions observed in Compound's governance disputes over treasury management and Uniswap's debates about fee distribution mechanisms. Underlying this trend is a fundamental question: how should decentralized protocols manage relationships with the centralized entities that initially developed them? This governance decision occurs against a backdrop of Extreme Fear sentiment across cryptocurrency markets, with the Fear & Greed Index registering 20/100. Consequently, risk aversion appears elevated, potentially influencing governance outcomes toward more conservative positions. Related developments include Bitcoin's recent price action amid contradictory sentiment indicators and previous market movements during similar sentiment conditions.

What Happened?

According to on-chain voting data, the Aave DAO rejected Proposal AIP-137, which would have transferred Aave Labs' intellectual property and equity to the decentralized organization while making the development company a subsidiary. The measure failed with 55.29% of votes cast against the absorption. The proposal included provisions requiring Aave Labs to transfer all profits generated from the Aave brand to the DAO treasury. Market analysts note the proposal emerged following allegations that Aave Labs was privately appropriating swap fees generated from Aave's CowSwap-based interface without proper disclosure or compensation to token holders. The voting outcome represents a significant governance decision with implications for protocol development incentives and treasury management strategies.

Technical Analysis & Price Action

On-chain data indicates AAVE token price action has remained relatively stable following the governance decision, trading within a narrow range between $82.50 and $85.20 over the past 24 hours. The immediate price stability suggests market participants had largely priced in the proposal's rejection. Volume profile analysis shows increased trading activity around the $84.00 level, creating a potential order block that may serve as short-term support. The 50-day moving average at $83.75 provides additional technical support, while resistance appears at the $86.40 Fibonacci retracement level from the November high. Bullish invalidation occurs below the $81.90 support level, which represents the 0.618 Fibonacci retracement of the recent upward move. Bearish invalidation triggers above $87.20, which would break the descending trendline established over the past seven trading sessions.

By The Numbers

Why It Matters

For institutional participants, this governance decision establishes precedent regarding intellectual property rights in decentralized finance. The rejection suggests DAOs may prefer maintaining arm's-length relationships with development entities rather than absorbing them entirely, potentially preserving development incentives while avoiding regulatory complications associated with equity ownership. Market structure suggests this approach could become standardized across DeFi protocols facing similar governance questions. For retail participants, the decision reinforces the principle that DAO governance can effectively check potential misalignment between developer interests and token holder interests. The allegations about fee appropriation highlight ongoing transparency challenges in DeFi, where revenue streams may not be fully visible to governance participants without specific proposals forcing disclosure.

Community Sentiment

Industry observers on social platforms have expressed divided perspectives on the governance outcome. Some analysts argue that "rejecting the absorption proposal maintains necessary separation between development and governance functions, preventing regulatory overreach." Others counter that "the failed proposal represents a missed opportunity to fully align incentives between Aave Labs and token holders." The debate reflects broader tensions in decentralized governance models, particularly regarding how to balance development efficiency with community control. Market structure suggests these governance debates will intensify as protocols generate substantial revenue streams requiring distribution decisions.

Price Prediction / Future Outlook

Bullish Case: If AAVE token maintains support above $82.50 and breaks through the $86.40 resistance level, technical analysis suggests a move toward $90.00 could materialize. This scenario requires sustained development activity from Aave Labs despite the governance rejection and continued protocol adoption metrics. Bullish invalidation occurs below $81.90, which would signal breakdown of the current consolidation pattern.

Bearish Case: If allegations about fee appropriation damage developer credibility or lead to regulatory scrutiny, AAVE could test the $78.00 support level. This scenario would likely coincide with broader market weakness given the Extreme Fear sentiment currently prevailing. Bearish invalidation triggers above $87.20, which would indicate the governance decision has been fully priced in without lasting negative impact.

FAQs

What percentage voted against the Aave DAO proposal? 55.29% of votes cast were against absorbing Aave Labs' IP and equity.

Why was the Aave DAO proposal rejected? The proposal followed allegations that Aave Labs was privately appropriating swap fees without proper disclosure or compensation to token holders.

What happens to Aave Labs after the proposal rejection? Aave Labs continues as an independent development entity rather than becoming a DAO subsidiary, maintaining the current relationship structure.

How does this affect AAVE token price? Immediate price action suggests the market had largely priced in the rejection, with technical support at $82.50 and resistance at $86.40.

What are the broader implications for DeFi governance? The decision suggests DAOs may prefer maintaining separation from development entities rather than absorbing them, potentially setting precedent for similar governance decisions across DeFi.

Data source: Read Original Report

Source Note: Market data and factual reporting in this article are sourced from original reports. Commentary and analysis provided by CoinMarketBuzz.