Aave Labs faces backlash over CoW Swap integration

In an ‘open letter’ posted to Aave’s governance forum, a delegate going by EzR3aL claims that the partnership between Aave Labs and CoW Swap has diverted fees previously destined for the Decentralized Autonomous Organization (DAO) treasury.

Previously, swaps through the Aave Labs frontend relied on an adapter to ParaSwap, and excess funds generated from this were donated to the Aave DAO treasury.

The post states that the DAO is not receiving the “extra fees… ranging from 15 to 25 bps” that result as a product of the new Aave Labs integration with CoW Swap. The most recent weekly fee transfer was described as 46 ETH, worth over $150,000 at the time.

The fees collected by the Aave DAO from this ParaSwap integration have been dropping noticeably since CoW Swap was partially integrated in June, according to analysis quoted in the post.

Last week, Aave announced that CoW Swap would handle all in-platform swaps, offering “better prices… and protection against MEV attacks.”

The integration allows users to “repay borrow positions using their collateral, swap between different collateral types, change their debt positions, or withdraw and swap assets.”

Monetization vs alignment

The points raised by EzR3aL have the Aave community questioning Aave Labs’ actions.

Marc Zeller of the influential Aave Chan Initiative (ACI) delegation called the move “extremely concerning.” Claiming that it amounts to “stealth privatization… leveraging brand and IPs paid for by the DAO.”

On the forum, he mentions a “tacit relationship” between Aave Labs and the DAO in “the best interests of AAVE token holders.” Claiming the ACI helped with development “in good faith,” he feels “fooled.”

The discussion is ongoing, with over 30 comments in the last few hours. Members variously called the move an “unforced error,” accused Labs of “mis-alignment,” and urged “re-unification.”

One simply states that, despite “walls of text repeating the same points… the community is unhappy.”

Aave Labs in the forum has explained that it feels that these integrations sit “entirely outside the protocol the DAO stewards” and that these features will be better for users and that the historic reason that the DAO ever received the surplus from ParaSwap was in part related to the fact that “Aave Labs didn’t have the ability to store the surplus,” so it was “donated to the Aave DAO.”

Aave Labs further insists the front-end interface, which it “funds, builds, and maintains,” is a “product, not a protocol component.”

Stani Kulechov, founder and CEO of Aave, clarified that Aave Labs “decided to build these [CoW Swap] adapters, fund the development ourselves and eventually integrate into our own application to provide a better experience,” he explains.

Kulechov ends by asserting, “it’s perfectly fine for Aave Labs to monetize its products,” referring to the front-end interface.

Aave DAO revenue push

The Aave Chan Initiative has recently made proposals focused on maximizing Aave DAO’s revenue.

Last week, two votes were held on whether to suspend the use of Sky (formerly Maker’s) USDS as collateral and to shut down instances on underperforming chains. Both votes passed.

Aave, a lending platform, is the decentralized finance (DeFi) sector’s largest protocol by total value locked (TVL).

DeFi data dashboard DeFiLlama puts Aave’s TVL at $34 billion. It estimates an annual revenue of approximately $112 million, which comes from a portion of user fees.

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