BitcoinWorld Aave Revenue Sharing: A Bold New Chapter for Token Holder Value in DeFi Governance In a significant development for decentralized finance governance, Aave founder Stani Kulechov has announced that Aave Labs will share future non-protocol revenue with AAVE token holders. This announcement, made in early 2025, follows a contentious governance vote and signals a strategic evolution in how major DeFi protocols manage growth, value creation, and community alignment. The move addresses fundamental questions about value accrual and decentralization that have challenged the sector since its inception. Aave Revenue Sharing Model: The Core Announcement Stani Kulechov, the founder of the pioneering crypto lending protocol Aave, detailed a new framework for value distribution. According to his statement, revenue generated from business activities outside the core Aave protocol will be shared with holders of the AAVE governance token. This revenue will stem from ventures including real-world asset tokenization, institutional lending products, and consumer-facing financial applications. Kulechov emphasized that a formal governance proposal outlining the specific mechanics will follow soon. This model represents a departure from traditional protocol fee-sharing, focusing instead on value generated by the core development team’s expansion efforts. The announcement comes directly after the failure of a recent, more radical governance proposal. That proposal sought to make Aave Labs a formal subsidiary of the Aave DAO by transferring its intellectual property and equity to the decentralized autonomous organization. The proposal did not achieve the necessary consensus, highlighting ongoing tensions within the community regarding the appropriate relationship between a foundational development team and a decentralized governance body. Context and Precedent: The Failed Governance Proposal To understand the significance of the new revenue-sharing plan, one must examine the governance event that preceded it. The community recently voted on Aave Improvement Proposal (AIP) 2025-01, which proposed a full absorption of Aave Labs into the Aave DAO. Proponents argued this would perfect decentralization by aligning all incentives under a single token-holder governed entity. However, the proposal faced substantial opposition over concerns about operational agility, legal complexity, and the dilution of the founding team’s ability to execute swiftly. A particularly notable aspect of the vote was Kulechov’s own actions. Public blockchain data revealed that the founder purchased a substantial amount of AAVE tokens prior to the vote, which he then used to exercise his voting rights. This action sparked immediate debate within the crypto community. Critics raised concerns about centralization and the potential for founder influence to override broader community sentiment. Defenders argued it demonstrated a significant financial commitment and alignment with the protocol’s future. This event underscores the complex and often messy reality of on-chain governance, where capital concentration can directly translate to voting power. The Centralization Debate in DeFi Governance The incident highlights a persistent structural challenge in DeFi: the balance between efficient leadership and decentralized decision-making. While decentralized autonomous organizations promise community-led governance, early founders and large token holders often retain significant influence. Kulechov’s large token purchase, while transparent, brought this tension into sharp focus. Analysts from institutions like CoinShares and Delphi Digital have frequently noted that governance participation rates in major DAOs often remain low, sometimes allowing concentrated holders to sway outcomes. The new revenue-sharing model can be seen as a response to this critique, offering tangible value to all token holders as the ecosystem expands, potentially incentivizing broader and more sustained participation. Strategic Pivot: Seeking Growth Beyond Core DeFi Kulechov’s rationale for the new business direction is rooted in competitive and strategic necessity. He argued that the Aave protocol must explore new revenue streams beyond its established decentralized lending and borrowing markets. The founder identified several key growth verticals: Real-World Asset (RWA) Tokenization: Bringing traditional financial assets like treasury bills, real estate, and corporate debt onto the blockchain as collateral. Institutional Lending: Creating tailored, compliant products for hedge funds, family offices, and other traditional finance entities. Consumer Financial Products: Developing user-friendly applications that leverage Aave’s liquidity for savings, payments, or credit. Kulechov contended that funding these ventures directly through the DAO treasury would be “inefficient and uncompetitive.” Instead, he proposed a model where Aave Labs, with its dedicated team and resources, incubates and develops these products. The successful ventures would then generate revenue, a portion of which flows back to the AAVE token holders. This approach mirrors strategies seen in traditional tech, where a core company spins out new business units, but with a crypto-native twist of direct value sharing with the community. Comparative Analysis: Value Accrual in DeFi Protocols How a protocol captures and distributes value is a fundamental differentiator in DeFi. The Aave announcement places it within a spectrum of existing models. The table below contrasts the new Aave approach with other major protocols: Protocol Primary Value Accrual Model Token Utility Aave (New Model) Protocol fees + Shared non-protocol business revenue Governance, Safety Module, Revenue Share Compound (COMP) Governance rights over protocol parameters Pure Governance Uniswap (UNI) Governance rights (fee switch inactive as of 2025) Pure Governance Maker (MKR) Governance and surplus buffer recapitalization Governance, Recapitalization Curve (CRV) Fee distribution and vote-locking for gauge weights Governance, Fee Share (veTokenomics) This new hybrid model could strengthen the AAVE token’s investment thesis by adding a direct cash-flow component alongside its established governance and staking utilities. It responds to a common critique that many governance tokens lack clear value accrual mechanisms beyond speculative trading. Potential Impacts and Market Implications The proposed shift carries several potential implications for Aave and the broader DeFi sector. Firstly, it could enhance AAVE’s attractiveness as a yield-bearing asset, potentially drawing in a new class of investors focused on real yield and cash flow. Secondly, it may set a precedent for other foundational DeFi teams considering how to scale their operations while maintaining community trust. Projects like Compound Labs or the Uniswap Foundation may face increased community pressure to explore similar value-sharing arrangements for their off-protocol initiatives. However, the model also introduces new complexities. The definition and transparent reporting of “non-protocol revenue” will be crucial. Token holders will require robust, verifiable accounting to trust the system. Furthermore, the legal and regulatory treatment of such revenue sharing remains an open question in many jurisdictions. Could distributing profits from business activities turn a governance token into a security in the eyes of regulators? These are questions the forthcoming formal proposal must address with clarity. Expert Perspectives on Protocol Sustainability Industry observers have long debated the sustainability of pure governance tokens. David Hoffman, co-founder of Bankless, has written extensively on the need for “protocol-owned value” and sustainable treasury management. The Aave move aligns with this school of thought, seeking to diversify revenue sources. Conversely, some purists argue that a protocol’s value should derive solely from its utility and that off-protocol ventures distract from core development. The success of this model will likely depend on Aave Labs’ ability to execute on these new ventures without diverting resources from maintaining and improving the core, battle-tested lending markets that made Aave a leader. Conclusion The announcement by Aave founder Stani Kulechov to share non-protocol revenue with AAVE token holders marks a pivotal experiment in DeFi governance and value distribution. It emerges from the practical realities of a failed full-integration proposal and addresses core concerns about centralization and value accrual. By proposing a hybrid model where Aave Labs pursues growth initiatives and shares the proceeds, the protocol seeks to balance entrepreneurial agility with community alignment. As the formal proposal takes shape, the crypto community will watch closely. Its structure, transparency, and execution could well define a new template for how foundational teams and decentralized communities collaborate to build and capture value in the evolving financial landscape. The success of this Aave revenue sharing model may influence the trajectory of decentralized governance for years to come. FAQs Q1: What exactly is Aave Labs proposing to share with token holders? Aave Labs proposes to share a portion of the revenue generated from new business ventures outside the core Aave lending protocol. This includes future income from areas like real-world asset tokenization, institutional products, and consumer finance apps, not the standard fees from the existing DeFi platform. Q2: Why did the previous proposal to make Aave Labs a DAO subsidiary fail? The previous governance proposal (AIP 2025-01) failed to pass due to community concerns about operational inefficiency, legal complexity, and potentially slowing down the development team’s ability to compete and innovate in fast-moving markets. Q3: How does Stani Kulechov’s token purchase affect governance? Kulechov’s purchase of a large amount of AAVE before the vote allowed him to cast more votes. This action highlighted the ongoing tension in DAOs between founder influence and decentralized decision-making, as voting power is directly proportional to token ownership. Q4: How does this model differ from other DeFi protocols like Uniswap or Compound? Unlike Uniswap (pure governance) or Compound (pure governance), Aave’s new model adds a direct revenue-sharing component from external business activities. This hybrid approach combines governance rights with a potential cash-flow mechanism, similar in spirit to but distinct from Curve’s fee-sharing model. Q5: What are the main risks or challenges with this new revenue-sharing plan? Key challenges include defining and transparently reporting “non-protocol revenue,” ensuring the core protocol development is not neglected, and navigating potential regulatory scrutiny regarding whether the revenue share could affect the legal classification of the AAVE token. This post Aave Revenue Sharing: A Bold New Chapter for Token Holder Value in DeFi Governance first appeared on BitcoinWorld .
