Aave community probes CoW Swap integration and Aave Labs ‘stealth privatization’ of protocol
A simmering governance dispute has broken out around DeFi’s largest lending protocol, Aave, after a delegate claimed that a recent CoW Swap integration and other product decisions have diverted potential revenue away from the Aave DAO and toward Aave Labs, raising fresh questions over how protocol economics should be split between the community and its main development company.The issue stems from a change in how swaps are routed through Aave-linked interfaces.In an open letter posted to Aave’s governance forum this week, an Orbit delegate and AAVE tokenholder posting under the pseudonym “EzR3aL” said their onchain analysis suggests that swap fees introduced via a new CoW Swap-powered interface are no longer flowing to the DAO treasury, unlike under a prior Paraswap referral setup, and instead appear to be accruing to a separate address not controlled by the DAO.The delegate’s post notes that Aave Labs integrated Paraswap adapters when rolling out Aave v2 and v3, allowing users to execute token swaps without leaving the Aave frontend. In June 2022, Paraswap introduced a referral program that directed surplus revenue to the Aave DAO treasury without imposing any explicit fee on users.According to the delegate, this structure provided an incremental revenue stream for the DAO on top of core lending and flash loan fees. Unlike the Paraswap arrangement, Aave Labs’ CoW Swap integration now includes an extra fee of 15 to 25 basis points on swaps, as documented in Aave’s materials.In mid-2025, Aave Labs began rolling out CoW Swap-powered swap functionality in its application. By early December, the protocol highlighted a deeper partnership, as reported by The Block. It also integrated new adapters on several chains, improved incentives tooling via Merkl, and a Balancer v3-based flash loan factory in a November development update.Using test transactions, onchain explorers, and CoW Swap documentation, EzR3aL said they traced the partner fee field in CoW Swap app data for the “aave-v3-interface-widget” to a specific recipient address. This address has been receiving periodic ETH transfers — for example, around 46 ETH on Dec. 4 on Ethereum, with additional flows on Arbitrum — and estimated that, across supported chains, the fee stream could be worth at least about $200,000 per week since the second quarter of 2025, coinciding with the newer integration. EzR3aL noted that this estimate is based on their own tests and public data and that actual volumes could be higher.The post asked Aave Labs directly whether the DAO still receives any portion of CoW Swap-related fees, whether the DAO was consulted before the change, and whether any commercial agreements with CoW Swap influenced the decision.EzR3aL's post, which explicitly framed itself as a set of questions rather than a formal proposal, has sparked a wider debate involving the Aave Chan Initiative (ACI) and Aave founder Stani Kulechov over the alignment between Aave Labs and the decentralized community that governs the protocol.Aave is the largest decentralized finance lender, with nearly $34 billion in total value locked and around $112 million in annualized revenue, according to The Block’s data. Its native token, AAVE, surged nearly 7% in the last 24 hours amid a broad crypto market rebound, The Block's price page shows.Aave Chan Initiative calls situation ‘extremely concerning’The Aave Chan Initiative, a major Aave service provider and influential governance group led by Marc Zeller, followed up with its own response on the forum and on X, calling the situation “extremely concerning.”"The stealth privatization of approximately 10% of Aave DAO's potential revenue, leveraging brand and IPs paid for by the DAO, represents a clear attack on the best interests of the $AAVE Token holders," Zeller wrote on X on Friday.Zeller argued that service providers on the DAO’s payroll, including Aave Labs, have a “fiduciary duty” to act in the best interests of AAVE token holders. He said there had been a long-standing expectation that monetization of the aave.com frontend — including Paraswap positive slippage and flash loan fees triggered by interface-driven swaps — would accrue to the DAO treasury.“The tacit relationship was that the DAO lent the usage of the Aave brand and IP in exchange for the monetization of the aave.com frontend contributing to Aave DAO resources,” Zeller wrote, adding that ACI engineers had contributed extensively to the Aave Labs-maintained interface under that assumption.In his forum post, Zeller said ACI’s main concern with the CoW Swap integration is that Aave DAO appears to have lost two revenue streams: Paraswap referral income and flash loan fees from swaps, given that CoW Swap solvers frequently use Balancer’s flash loans, which are fee-free, instead of Aave’s.He also questioned whether the CoW Swap execution, plus the new front-end fee, is clearly better for users than the prior setup, and raised concerns that it may be “symptomatic of a larger trend of privatizing larger portions of protocol revenue” for the benefit of Aave Labs.Horizon, vault fees, and Aave v4 liquidation engine under scrutinyBeyond CoW Swap, Zeller’s response broadened the scope to other Aave Labs-linked products and economics.He asked whether Aave Vaults — an Aave Labs product highlighted in protocol documentation — includes hardcoded fees that go solely to Aave Labs. And if so, whether any revenue-sharing arrangement with the DAO is planned, given the vaults’ expected role in Aave v4.Zeller also pointed to Horizon, an Aave Labs-associated product that originally proposed a second token structure before being reworked, and said that to date it has generated about $100,000 in visible revenue against roughly $500,000 in Aave DAO incentives. Horizon is designed for institutional real-world asset adoption, like tokenized U.S. Treasuries. Once the cost of maintaining GHO’s peg on deposits into Horizon is considered, Zeller said, the net economics may be even more negative for the DAO. He asked whether any direct compensation or integration fees related to Horizon or asset onboarding had been arranged for Aave Labs and, if so, whether those were intended to be shared with the DAO.Finally, Zeller flagged the planned Aave v4 liquidation engine as a potential future flashpoint. He noted that Aave v3’s existing liquidation design has handled major volatility events without significant bad debt and suggested that shifting to an externalized engine, as proposed, could reduce liquidation revenue for the DAO by “tens of millions of dollars per year.”In his response, Zeller questioned whether the change would represent another instance of economic flows being shifted away from the protocol treasury.It’s important to note that none of these points were presented as proven breaches of duty or judgment, but rather as a set of questions about alignment and disclosure that Zeller said the DAO needs to address before committing fully to the v4 roadmap.Founder Stani Kulechov: Aave Labs can monetize its own interfaceAave founder Stani Kulechov responded publicly in an X thread, offering Aave Labs’ perspective on the controversy.Kulechov emphasized that Aave Labs has maintained its own “opinionated” frontend for more than eight years, separate from the protocol itself, and said it is appropriate for the company to monetize that product, particularly for features that sit outside core protocol functionality."Our goal is always to use Aave Protocol and build also features that are outside of the Aave Protocol that help to keep the users in the protocol, transact more and have competitive advantage," Kulechov said. “It’s also perfectly fine for Aave Labs to monetize its products, especially as they don’t touch the protocol itself."He said Aave Labs previously integrated Paraswap adapters into its interface and that, while Paraswap’s structure generated surplus from better-than-quoted execution, Aave Labs chose at the time "to donate" that surplus to the Aave DAO. That decision, Kulechov argued, was voluntary and could have instead taken the form of rebates to users.According to Kulechov, the more recent CoW Swap integration was driven by a desire to improve the user experience and add MEV protection, based on user feedback, and Aave Labs funded the adapters and integration itself.He said the company's monetization on that interface does not alter the underlying Aave protocol, which remains permissionless for any team to build on, and that Aave Labs does not believe the Aave DAO should pay for its product development. Aave Lab's end goal, he argued, is to grow the protocol and keep users inside the ecosystem through additional features, and, in doing so, ultimately increase volumes and revenues that benefit AAVE tokenholders.Kulechov did not appear to directly address all of the specific questions raised in the Aave governance forum about fee destinations, vault revenue splits, or Horizon economics.Disclaimer: The Block is an independent media outlet that delivers news, research, and data. As of November 2023, Foresight Ventures is a majority investor of The Block. Foresight Ventures invests in other companies in the crypto space. Crypto exchange Bitget is an anchor LP for Foresight Ventures. The Block continues to operate independently to deliver objective, impactful, and timely information about the crypto industry. Here are our current financial disclosures.© 2025 The Block. All Rights Reserved. This article is provided for informational purposes only. 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