Why Aave Labs Is Putting Itself at the Mercy of the DAO

Aave Labs' 'Aave Will Win' proposal aims to align all revenue capture with the Aave DAO and token holders, ensuring long-term sustainability and growth by putting Aave Labs' funding directly under DAO governance, supported by the flexible Aave V4 protocol and a new foundation for brand assets.

• Aave Labs proposes directing 100% of all product revenue to the Aave DAO, aligning value capture with token holders.

• Aave V4's modular hub-and-spoke architecture and reinvestment feature are key to expanding protocol use cases and revenue.

• A new independent foundation will manage Aave's brand and trademarks, while Aave Labs will be funded by DAO grants to ensure ecosystem growth.

Aave Labs introduced the 'Aave Will Win' proposal to address past controversies regarding revenue distribution and to unify value capture under the Aave DAO. The core of the proposal is to direct 100% of all product-generated revenue to the DAO, making Aave Labs' operations funded by DAO grants. This strategy aims to remove uncertainty, expand the Aave token's revenue capture, and foster ecosystem growth through new product development and the advanced Aave V4 protocol.

Proposal Background

• 00:01:37 The 'Aave Will Win' proposal was created to clarify revenue distribution between Aave Labs and the Aave DAO, following a December controversy where fees from a DEX aggregator were redirected to Aave Labs. Aave Labs historically served as a permanent contributor to the Aave protocol, building smart contract-based lending solutions that became a leading DeFi protocol. The proposal's goal is to remove the uncertainty of a dual model (token and for-profit labs) by centralizing all value capture to the Aave token holders while enabling Aave Labs to continue building innovative products.

Aave V4 Features

• 00:14:24 Aave V4 is a state-of-the-art lending protocol designed for flexibility and scalability, crucial for expanding Aave's use cases and revenue streams. Its hub-and-spoke architecture allows for concentrated liquidity in hubs while isolating risk across various lending strategies (spokes). This modular design encourages external developers to innovate, addressing DeFi's liquidity bootstrapping problem. A significant feature is the 'reinvestment feature,' which efficiently manages and potentially invests idle funds within pools without adding risk, driving capital efficiency for the entire ecosystem.

Foundation for Brand

• 00:22:57 The proposal includes establishing a foundation to own Aave's trademarks and brand assets, which are currently held by Aave Labs. This aims to provide legal clarity and enforcement capabilities for the brand, as the DAO is not a legal entity. While some in crypto view the foundation model as outdated, it is considered a proven and fast way to ensure neutrality and protect the brand, providing essential resiliency and transparency for the lending protocol in an evolving regulatory landscape.

DAO Funding and Critiques

• 00:39:41 Aave Labs proposes to operate on annual grants from the Aave DAO, which has an ongoing revenue of approximately $140 million. This decision forgoes Aave Labs' independent revenue capture, aiming for a fully token-centric model. Critics, including Mark Zeller and Multicoin Capital, raised concerns about the size of the $50.7 million funding request and the definition of '100% revenue' given Aave Labs' discretion over user incentives. Aave Labs affirms that this proposal is a 'temp check' and open to adjustments based on community feedback, emphasizing the transparency of public discussions in the DAO.