Report: Aave Power Struggle Causes a $500 Million Market Cap Drop

The dispute centered on swap fees being forwarded to Aave Labs, reigniting tensions over who gets value in supposedly decentralized protocols.

Aave’s governance token reportedly lost half a billion dollars in market value in mid-December 2025 when a public conflict between the decentralized autonomous organization (DAO) and its core development team, Aave Labs, left investors confused.

The dispute, detailed in a Jan. 14 report by market intelligence provider Santiment, focused on control of key revenue streams and brand assets and has become a critical test for decentralized governance. However, data from the chain shows that major investors used the panic as a buying opportunity.

Governance conflict shakes trust and then stabilizes

According to Santiment, the tension goes back to early December, when DAO members were members noted that swap fees associated with a new CoW Swap integration on Aave were being forwarded to an address managed by Aave Labs instead of the DAO treasury.

Previously, similar fees flowed to token holders, raising expectations around shared benefit. However, Aave Labs defended the change as revenue from a product it independently funded, causing the disagreement to quickly evolve into a broader debate over governance rights, value capture and control of the Aave brand.

The discussion peaked between December 11 and December 22, 2025, when proposals emerged to bring Aave’s intellectual property and brand assets under DAO control. The vote, which was pushed to Snapshot during the holiday season, drew criticism for its timing and process, with major market participants including Wintermute publicly opposing the alignment plan. Wintermute CEO Evgeny Gaevoy wrote on December 26 that the proposal lacked clarity and risked deepening political power struggles rather than establishing long-term incentives.

As uncertainty increased, AAVE’s price fell by about 15% at its worst point, contributing to the market cap decline of about $500 million. Still, Santiment noted that fundamentals remained solid, with deposits to the protocol rising about 60% year over year and weekly revenues reaching record levels by the end of 2025.

Whale accumulation and price action indicate cautious optimism

As retail interest cooled during the dispute, the major property owners went the other way. Data cited by Santiment shows that the top 100 AAVE addresses increased their share of supply through December from approximately 72% to 80%. Currency balances also fell, a sign that tokens were being moved into long-term storage rather than being prepared for sale.

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Meanwhile, whale transaction numbers remained subdued, indicating steady accumulation rather than frenetic trading. That shift coincided with a change in tone in early January, after Aave Labs said it would explore whether revenue generated outside the core protocol would be shared with token holders.

The sentiment metrics tracked by the analytics platform turned more positive on January 13, 2026, reaching the strongest bullish-to-bearish ratio since before the dispute.

Price action also reflects this stabilizing mood. At the time of writing, AAVE was trading around $178, up almost 5% in the past 24 hours and just over 4% in the past week, although the stock is still down more than 9% in the past month and 38% year over year.

For many long-term holders, the saga has become more of a stress test than a breaking point, and with Aave Labs outlining an ambitious 2026 roadmap and governance discussions still ongoing, the coming months will reveal whether this uneasy truce turns into a clearer model for power and profit in the DeFi protocol.