TL;DR
Aave’s market capitalization fell by roughly $500 million after a public dispute between the DAO and Aave Labs unsettled investors.
The conflict focused on fee distribution, control of intellectual property, and value capture inside the protocol.
Despite the sell-off, on-chain data showed large holders accumulating AAVE and protocol activity staying resilient, helping contain deeper losses.
Aave’s governance token experienced heightened volatility in mid-December 2025 as a power struggle between the Aave DAO and Aave Labs reignited questions about decentralization and incentive alignment. The dispute weighed on market confidence and triggered a rapid pullback, briefly erasing close to $500 million in market value. The episode highlighted governance frictions that continue to challenge large DeFi protocols as they mature.
Aave Governance Conflict Brings Control Issues To The Surface
The disagreement began when DAO members identified that swap fees from a recent integration were routed to wallets controlled by Aave Labs, rather than the DAO treasury. In earlier implementations, similar revenue streams had benefited token holders, shaping expectations of shared economic upside.
Aave Labs maintained that the integration was funded independently, justifying a separate revenue structure. That response failed to settle concerns and expanded the debate toward brand ownership, intellectual property rights, and decision-making authority across the ecosystem.
Governance discussions intensified between December 11 and December 22 as proposals emerged to move key Aave assets under DAO oversight. Several large market participants criticized the process for lacking clarity and poor timing. During this period, AAVE’s price dropped nearly 15%, directly contributing to the sharp contraction in market capitalization.
On-Chain Signals Point To Stability Beyond Price Moves
While short-term sentiment weakened, network fundamentals remained solid. Analytics firms reported that protocol deposits increased on a yearly basis, while weekly revenue reached record levels toward the end of 2025. User activity and capital efficiency showed limited disruption.
At the same time, large holders accumulated AAVE as prices declined. Data indicated that top wallets increased their share of supply, while exchange balances fell, suggesting reduced selling pressure. Transaction patterns pointed to measured accumulation rather than panic.
By early January 2026, sentiment indicators improved after Aave Labs signaled openness to revenue-sharing discussions. AAVE rebounded modestly, trading near $178, up about 5% over 24 hours, though still lower on a monthly basis.
The situation underscored the difficulty of balancing decentralization with operational leadership. For Aave, the resolution of these governance talks will be critical in determining whether the protocol can reinforce long-term confidence while maintaining its position in DeFi.
