Aave V4 Set for Ethereum Mainnet Deployment as Governance Turmoil Sparks 10% Token Correction

Aave's governance is issuing a stark warning as key DAO members exit, signaling deep internal misalignment just as the protocol prepares to launch its ambitious V4 upgrade on Ethereum. The AAVE token has plunged nearly 10% in 24 hours to $110, erasing recent gains near $120, following a March 13 proposal detailing a new 'Liquidity Hubs and Spokes' architecture designed to revolutionize capital efficiency for lending markets.

Zeller critizes $50 million trade return that returned almost nothing

A transaction executed through CoW Protocol via Aave’s interface on March 12 was meant to convert the user’s $50 million aEthUSDT to Aave. Instead, the order hit trading pools with very thin liquidity and produced a near-total price impact, leaving the user with approximately $36,000.

Aave founder Stani Kulechov said the interface had presented warnings about extraordinary slippage to the user and required them to confirm via a checkbox before proceeding with the transaction.

“The transaction could not be moved forward without the user explicitly accepting the risk,” he said on X, adding that CoW Swap’s routers had functioned as intended. However, he acknowledged that the outcome was far from optimal.

Aave said it would return approximately $600,000 in fees collected from the transaction and was attempting to contact the affected user.

Marc Zeller, the founder of Aave Chain Initiative (ACI), who has been vocal in his recent criticisms of Aave, stated that the previous Aave frontend had enforced a hard 30% slippage ceiling, reverting any swap that exceeded it. “Users can now enjoy the big DeFi energy of 99% slippage,” he wrote on X.

Zeller went on to write in a separate post the following day that Aave was originally designed by people who placed user protection at the center of product logic.

However, he ponders that this philosophy appears to have shifted. “Aave has now new cooks in the kitchen,” he wrote, “and mindset seems different.”

The V4 upgrade has divided the Aave ecosystem

The governance tensions surrounding V4 run deeper than the recent incidents.

In February, BGD Labs, the firm that served as Aave’s principal technical contributor for four years, announced it would not renew its engagement with the DAO after its contract ends by April 1, 2026, citing centralization concerns with Aave Labs and what it described as an unfair portrayal of Aave V3’s track record in order to build the case for V4.

That announcement followed a turbulent snapshot vote on an Aave Labs proposal known as “Aave Will Win”, which sought approval for up to roughly $51 million in stablecoins and 75,000 AAVE tokens to fund product development and marketing with a heavy focus on V4.

The vote passed with around 52.6% in favor, but Zeller and the ACI did not support the proposal. Its passing led to the Aave DAO delegate announcement that it won’t be renewing its engagement with the DAO, a decision that removes one of the protocol’s most active governance contributors.

What is the next step for V4?

On the protocol’s commercial fundamentals, the picture is less gloomy. Monthly active users on Aave’s lending markets reached roughly 155,000 in February, close to double the level six months earlier and an all-time high.

As of late 2025, 86% of Aave’s revenue was generated on Ethereum Mainnet, and to date, a large chunk of that revenue continues to come from where V4 is now proposed to launch.

The Aave Labs team says that the new architecture, developed over a year of security review spanning some 345 days of cumulative audits, formal verification, and a public security contest backed by a $1.5 million DAO budget.

The proposal is currently at the Aave Request for Comment stage, where it must clear a Snapshot vote before proceeding to a formal on-chain governance vote, or AIP, which would include the finalized risk parameters prepared by Aave’s risk service providers.

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