The core of the Kung Fu went away and Aave's DAO dream broke?

Photo by Bootly, Bitpush News

On March 3rd, the Aave Protocol core governance team Aave Chan Initiative (ACI) announced that it would shut down operations and withdraw from AAVE。

This was the second major contributor to leave in two weeks -- before February 20, the development team of the Aave V3 Code Library, BGD Labs, announced its exit。

AFTER THE NEWS CAME OUT, THE AAVE TOKEN PRICE FELL BY OVER 11 PERCENT。

As DeFi  the most successful   in history; DAO (Decentralized Autonomy), the DeFi leader of nearly $27 billion in TVL assets, is experiencing a profound internal upheaval。

From income attribution dispute to tied voting

This crisis was buried as early as last December。

At that time, Aave Labs replaced the front-end transaction polymer from ParaSwap to CoW Swap without a governance discussion. The transaction charges that originally flowed to the DAO vault went to the account of Aave Labs。

Facing the challenge, the founder of Aave, Stani Kulechov, responded that the front-end interface was created by Labs, and income naturally belonged to Labs; the smart contract and the mobility pool belonged to DAO. This interpretation makes sense at the legal level, but it breeds discontent at the community level。

In February this year, Aave Labs presented a proposal called "Aave Will Win" to calm the controversy. The proposals include, inter alia, requesting DAO approval of approximately $51 million for V4 development in exchange for all future revenues from all Aave brand products to DAO and establishing Aave V4 as the sole technical basis for phasing out V3。

THE PROBLEM IS THAT THESE THREE THINGS ARE TIED TOGETHER. SUPPORT INCOME GOES TO DAO, BUT IT'S TOO BIG? NO CHOICE. CONSIDERING THAT V3 IS STILL VALUABLE AND SHOULD NOT BE FORGOTTEN? NO CHOICE. IT'S EITHER TOTALLY ACCEPTABLE OR TOTALLY NEGATIVE。

ACI DISSATISFACTION: UNTRANSPARENT VOTING

The central allegation in ACI ' s withdrawal statement was that a significant proportion of the votes in favour of the proposal came from addresses linked to Aave Labs. The temporary check vote was passed by only 52.58%, and ACI believes that without these "self-voting" results might be different。

The founder of ACI, Marc Zeller, wrote: "If one of the largest budget recipients could use his undisclosed voting rights to force the adoption of his own proposal, independent service providers would lose their existence in DAO."

ACI WASN'T TRYING TO SOLVE THE PROBLEM. PRIOR TO THE VOTE, IT PUT FORWARD FOUR CONDITIONS, INCLUDING STRICTER CHAIN MILESTONES AND RESTRICTIONS ON SELF-VOTING BY BUDGET RECIPIENTS, WHICH WERE NOT ADOPTED。

THIS CONFLICT REFLECTS THE STRUCTURAL PROBLEMS IN THE GOVERNANCE OF DAO。

Aave Labs owns a code library, brand names, social media and development voice. BGD Labs maintains the main V3 - it contributes more than 75% of the agreed income and 97% of the total deposits. ACI, which is responsible for governance coordination and business outreach, claims to have promoted 61 per cent of governance actions over the past three years, helping Aave to increase its DeFi market share from less than 50 per cent to more than 65 per cent。

THE THREE TEAMS SHOULD HAVE CHECKS AND BALANCES WITH EACH OTHER. BUT WHEN BGD AND ACI LEAVE EACH OTHER, THE REST OF THE CENTER OF POWER, HOWEVER IT MAY BE, IS NOT ENTIRELY REASSURING。

Stani Kulechov responded after ACI announced its withdrawal: "Thank Marc for his many years of service, the agreement will continue to function normally."

BUT THIS RESPONSE DOES NOT TOUCH ON THE CORE ISSUE: HOW CAN DAO TRUST THAT THE FUTURE WILL BE ON AN UNTESTED V4 WHEN THE PERSON BEST ABLE TO ASSESS V3 TECHNOLOGY RISKS IS OUT

In another noteworthy detail, institutional investors Blockchain Capital subsequently stated that the AAVE they held could not participate because the hosting platform did not support the snapshot vote. This reveals another reality of DAO governance: in nominal terms, decisions are made jointly by token holders, with voting rights often concentrated in the hands of a few。

THE GOVERNANCE CHALLENGE OF DAO

ACI INDICATED THAT OVER THE NEXT FOUR MONTHS, TOOLS AND RESPONSIBILITIES SUCH AS THE GOVERNANCE DASHBOARD, THE INCENTIVE FRAMEWORK, THE ROLE OF THE COMMITTEE WOULD BE TRANSFERRED OR OPENED. HOWEVER, SOME THINGS ARE DIFFICULT TO HAND OVER: THREE YEARS OF EXPERIENCE IN GOVERNANCE, FAMILIARITY WITH THE DETAILS OF THE AGREEMENT AND COORDINATION OF HUMAN NETWORKS AMONG DIFFERENT STAKEHOLDERS。

DATA SHOW THAT ACI SPENT A TOTAL OF DAO $4.6 MILLION OVER THE PAST THREE YEARS TO HELP THE GHO STABILIZE THE CURRENCY FROM $35 MILLION TO $527 MILLION. IT REMAINS UNKNOWN WHO WILL TAKE OVER THESE TASKS IN THE FUTURE。

This wave of Aave is essentially a microcosm of the governance dilemma of DAO。

THEORETICALLY, DAO IS THE COMMUNITY OF TOKEN HOLDERS. IN PRACTICE, HOWEVER, GOVERNANCE IS OFTEN DOMINATED BY FOUNDING TEAMS, EARLY INVESTORS AND CORE DEVELOPERS. THESE ROLES ARE BOTH RULE-MAKERS, ENFORCERS AND SOMETIMES RECIPIENTS OF BUDGETS. WHEN CONFLICTS OF INTEREST ARISE, WHETHER "PROCEDURAL JUSTICE" IS SUFFICIENT IS THE FOCUS OF THE DEBATE。

A DeFi practitioner commented: “This is not a question of who is right and who is wrong, but rather that the existing governance mechanisms do not provide an effective solution when interests and positions are at odds

What happens next

The revision of the "Aave Will Win" proposal in the ARFC phase will be the first window to observe the course of events. If the "structural improvements" promised by Kulechov were to land, to break down the binding proposal, and to clarify the boundaries of voting behaviour, it might be possible to stop the wave。

IF WE CAN'T REACH A CONSENSUS, THE MOST EXTREME WOULD BE BGD AND ACI TO SET UP ANOTHER STOVE AND BREAK A NEW DEAL. DESPITE THE HIGH MOBILITY BARRIERS, IT IS NOT IMPOSSIBLE — THE SIMULTANEOUS DEPARTURE OF THE CORE DEVELOPERS AND THE GOVERNANCE TEAM PROVIDES THE TECHNICAL AND COMMUNITY BASE FOR THE SPLIT。

For Aave, the immediate question is how to fill the gap after the departure of two core teams. The longer-term question is how to find a more sustainable balance between the vision of the founders, the interests of the core developers and the will of the community, and if the paradox of "centralization" is not addressed, even the strongest agreements may lose their pre-emptive advantage in endless internal consumption。