Aave Plunges as Governance War Erupts: DeFi’s Achilles’ Heel Exposed

Aave's price just took a nosedive—and the culprit isn't a hack or a bear market. It's the very system designed to protect it: on-chain governance.

When Democracy Backfires

A bitter clash over a key protocol upgrade has paralyzed decision-making and spooked investors. Proposals are stalling, factions are forming, and the token is paying the price. It's a stark reminder that code may be law, but human politics is the judge and executioner.

The Liquidity Lockdown

As the debate rages on-chain, liquidity is fleeing off-chain. The uncertainty has triggered a classic risk-off move, with holders cutting exposure faster than a trader spotting a typo in a smart contract audit. The sell pressure highlights a brutal truth for DeFi: decentralized governance can sometimes act like a publicly traded committee meeting—great for transparency, terrible for agility.

Stress Test for the 'Decentralized' Dream

This isn't just an Aave problem. It's a live-fire stress test for the entire sector. Can major protocols navigate fierce internal disputes without crumbling? Or will they keep offering masterclasses in how to turn a technical roadmap into a political battleground? For now, the charts are casting their vote—and it's a resounding sell. Just another day where the 'wisdom of the crowd' looks suspiciously like panic.

The recent Aave crash followed the launch of a new DAO proposal, which was pushed by Aave Labs without full community consensus. The proposal aims to shift the brand and full ownership of Aave to the community. 

The market price crash followed an announcement by Aave founder Stani Kulechov that the proposal was moved to a snapshot stage. 

The recent DAO alignment proposal has been moved to Snapshot after extensive discussion. We realize the community is very interested in a path forward and is ready to make a decision.

Time for tokenholders to weigh in and vote.https://t.co/QwoPeglhmU

— Stani.eth (@StaniKulechov) December 22, 2025

The community reacted immediately, calling the proposal untimely, and lobbied for a no or abstain vote. 

Can Aave become community-owned?

Until recently, Aave Labs was the main driver of decisions for Aave, with constant oversight from the founder. The proposal points in the direction of turning Aave into a community-owned project. 

The shift from a foundation-led approach to a full DAO may be a shock to some projects. Other platforms like Cardano have also steered to community ownership. For coins like Kaspa, the shift from leadership to community governance did damage to the token price. 

The Aave proposal aims to shift all of the brand’s assets, domains, social media and other copyright into a DAO-controlled entity. The new Aave DAO will aim for anti-capture protections, to prevent whales from controlling the protocol. 

The proposal for a community-owned Aave DAO is still unclear on details, such as the ongoing participation of Aave Labs. The centralized entity has provided most of the stewardship and innovation on Aave, and it remains uncertain if the community can achieve the same results. 

Was the Aave decision rushed? 

The main grievance of the Aave community is that the decision felt rushed, and Aave Labs did not communicate its intentions in advance. 

The proposal originated with X user @ernesto, who also went on to protest that the vote was elevated to snapshot status without his consent. 

“This is not, in ethos, my proposal. Aave Labs has (for whatever reason) unilaterally submitted my proposal to vote in a rush, with my name on it, and without notifying me at all. If asked, I WOULD not have approved it,” warned the Aave contributor @ernesto on X. 

The user presented the proposal for DAO ownership on December 16, but with the idea that a community discussion would follow. Currently, @ernesto has prepared to launch a new proposal if the vote fails, and start another community discussion on the transfer of ownership. 

Additionally, the founder of the Aave Chan initiative warned of additional voting pressures and influences. Marc Zeller warned about increased stakes with previously inactive delegates, which could sway the vote. 

The community also protested that the vote was launched close to the year-end, when the holiday season may prevent the community from organizing and re-staking their tokens. As a result, the push to decentralize Aave was seen as rushed and partially manipulated by delegators. 

AAVE remains one of the most successful DeFi apps in 2025, with over $726M in annualized fees and over $33B in value locked. Despite this, the push to decentralize the organization and hand over ownership to the DAO arrives at a time when a weakening crypto market may threaten lending.

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