In-depth analysis of Aave's governance crisis: The power struggle between DAO and Labs triggers market panic.

TL;DR

In mid-December 2025, a serious governance conflict erupted within the Aave ecosystem. The core issue was Aave Labs' unilateral change to the fee structure, resulting in the DAO losing approximately $200,000 in revenue per week, while simultaneously refusing to relinquish brand control. This governance dispute, compounded by a whale sale of $230 million worth of AAVE on December 22nd (resulting in a loss of $13.75 million), triggered a chain reaction of selling pressure and liquidations, causing the AAVE price to plummet from $176.66 to a low of $158.93 within 15 hours (-10.32%). Technically, the market turned bearish across the board, with the RSI entering oversold territory. The futures market saw long positions being liquidated, reaching $1.57 million, and negative fees indicating a dominant short sentiment.

Core Analysis

The causes and progress of governing the "civil war"

The governance conflict within the Aave ecosystem fully erupted in mid-December 2025, with the core conflicts centered on two main areas: revenue distribution rights and brand control. (governance.aave.com )

Revenue distribution dispute : Aave Labs switched the token exchange functionality of the app.aave.com frontend from Paraswap to CoWSwap without community consultation, resulting in approximately $200,000 in weekly exchange fees being transferred from the DAO treasury to addresses controlled by Labs. Community members also accused Labs of rejecting the Horizon token issuance proposal (causing a loss of $400,000) and deploying unprofitable chains such as Aptos without sufficient justification.

A battle for brand control : On December 16, 2025, Ernesto Boado, co-founder of BGD Labs, initiated a proposal on the Aave governance forum, "[ARFC] $AAVE token alignment. Phase 1 - Ownership," demanding the transfer of control of core brand assets such as the aave.com domain, the @aave social media account, and the GitHub organization from third parties like Aave Labs to the DAO legal entity, and establishing an anti-takeover protection mechanism. governance.aave.com

Governance process controversy : Aave Labs submitted a proposal to Snapshot for voting without notifying the original author and without community consensus, which was criticized by the community as a "dishonorable" act that undermined trust. Founder Stani Kulechov publicly refused to hand over brand control to token holders, arguing that the front-end product (app.aave.com) is a private development by Labs and is separate from the protocol/DAO.

Community feedback is divided: supporters believe the DAO should own core brand assets, while opponents question the implementation costs (initial setup of approximately $30,000, annual maintenance of $75,000) and necessity. As of the time of data release, the proposal is still in the forum discussion stage and has not yet undergone on-chain voting.

Detailed Explanation of the Whale Sell-Off Event

On December 22, 2025 (UTC time), a whale with an address starting with 0xa923 completed a massive sell-off of AAVE within approximately four hours, directly triggering the price crash. (lookonchain)

Sell-off details :

• Size : 230,350 AAVE tokens (approximately US$37.6-38 million)
• Assets received : 5,869 stETH + 228 WBTC
• Loss realized : approximately US$13.75 million
• Execution time : Early morning to morning of December 22, 2025 (UTC)

This transaction triggered a surge in the on-chain profit/loss metric NPL (Net Profit/Loss) to its highest level since November, signaling that large investors were cutting their losses and exiting the market. The sell-off occurred during a period of low liquidity, causing the price to quickly break through multiple support levels, triggering a chain reaction of momentum selling and leveraged liquidations.

Market impact amplification mechanism :

1. Liquidity stampede : Large sell orders in a short period of time deplete buying depth, leading to increased slippage.
2. Liquidation cascade : Long positions concentrated in the $160-$165 range were subject to forced liquidation.
3. Panic : Governance controversies coupled with FUD (fear, uncertainty, and doubt) and signals of whale exodus weaken market confidence.

It's worth noting that whales borrowed/bought a total of 310,000 AAVE tokens in early December, but net selling pressure still dominated. Exchange AAVE balances are trending downwards, indicating reduced supply and selling pressure in the long term, but large-scale short-term sell-offs are enough to dictate price movements.

Price trend timeline

December 21, 18:00 UTC - December 22, 09:00 UTC (15 hours) :

Market data snapshot (as of 09:34 UTC, December 22, 2025):

• Price : $160.34
• Market capitalization : US$2.436 billion
• 24-hour trading volume : $541 million (significantly higher than the previous period)
• Circulating supply : 15,192,651 AAVE
• Total supply : 16,000,000 AAVE (fixed limit)

The price movement confirms the market's panic reaction to the governance crisis and the departure of whale, with the $160 mark becoming the focus of bulls and bears in the short term.

On-chain data analysis

Token liquidity and exchange dynamics

Exchange net inflow pressure (December 2025):

December 21st saw the largest single-day net inflow (+84,706 AAVE), coinciding with the price drop, confirming that the selling pressure mainly stemmed from large on-chain holders transferring assets to exchanges. Exchange reserves rose from 2.17 million AAVE on December 20th to 2.26 million AAVE on December 21st, indicating a short-term increase in supply.

Holder distribution structure (as of 2025-12-22):

The total number of holders is 197,040 addresses, which is relatively dispersed, but exchanges and protocols account for nearly 30% of the total, and the circulating tokens are relatively concentrated.

Token unlocking status :

There were approximately 1,224 AAVE tokens unlocked daily from December 1 to 31 (worth approximately $196,000 per day), totaling 37,944 tokens unlocked in December. However, there is no evidence of a specific event on December 22nd involving the unlocking of 2.23 million ecological reserves or 13 million LEND tokens through migration. Large-scale unlocking in the past was completed in 2020. Small-scale daily unlocks have limited impact on the market; the price crash was mainly driven by whale actively selling off their holdings.

On-chain large investor behavior tracking

Top 10 holders details (2025-12-22):

1. Staked Aave (stkAAVE) : 2,406,218 tokens (15.04%) - Protocol Staking Contract
2. 0xa700...ff6c9 : 1,236,948 (7.73%) - Unmarked large holders
3. Binance : 1,000,000 (6.25%) - Centralized exchange cold wallet
4. 0x494a...9e945 : 790,366 (4.94%) - Unmarked Wallet
5. Binance-Peg : 400,000 tokens (2.50%) - Locked up via cross-chain bridge
6. Aave Ecosystem Reserve : 390,942 tokens (2.44%) - Protocol Treasury
7. Balancer Vault : 353,988 tokens (2.21%) - DeFi Liquidity Pool
8. 0x7915...6d759 : 338,005 coins (2.11%) - Unmarked wallet

Recent Large Transaction Observations (December):

• No abnormal outflow of more than 10,000 AAVE was detected among the top holders.
• The Upbit exchange address saw a series of small deposits on December 21 (1,186 coins, 1,164 coins, etc.).
• On December 22nd, the large account holder 0xa700 transferred out 52 and 33 coins respectively, and transferred in 274 coins, which is in line with normal protocol interactions.

The 230,000 AAVE tokens sold by whale 0xa923 did not appear in the top 10 list, suggesting that it was a mid-sized whale ranked between 10th and 50th. Its departure had a greater psychological impact on the market than on its actual share of tokens.

Social sentiment analysis

Community division and trust crisis

The governance controversy has sparked widespread discussion on platforms such as Twitter/X, with the main narratives revolving around "loss of control over power" and "breakdown of trust".

Negative emotions dominate viewpoints :

• Questions about procedural justice : The community strongly criticizes Aave Labs for bypassing normal procedures and pushing the proposal to a Snapshot vote, believing it to be a trampling on the spirit of DAO autonomy.
• Unfair revenue distribution : The CoWSwap switch resulted in a loss of $200,000 in weekly revenue from the DAO, sparking outrage and seen as evidence that Labs abused its control for personal gain.
• Founder's stance : Stani Kulechov's refusal to relinquish brand control has been interpreted as an authoritarian tendency, conflicting with the decentralized philosophy.

The rational analysis perspective :

• Some KOLs pointed out that front-end development does have costs, and Labs' claim that product ownership is legitimate.
• Long-term bulls emphasize that the protocol's fundamentals (V4 upgrade, GHO stablecoin growth) and governance controversies can be assessed separately.
• Technical analysts believe this decline is due to a liquidity crunch rather than a deterioration in fundamentals, and see it as a buying opportunity.

Mapping of Controversial Points :

KOL perspectives and market narratives

High-quality analysts focus on governance risks and technical divergences:

Bearish arguments :

• Whale selling is interpreted as a sign of lost confidence in the prospects for governance.
• Internal conflicts could lead to developer attrition and ecosystem fragmentation.
• Short-term market sentiment is driven by FUD (Fear, Uncertainty, and Demand); a breach of technical stop-loss levels opens up further downside potential.

See more arguments (niche):

• AAVE remains the leader in DeFi lending, with its TVL (TVL) remaining healthy (~$10 billion).
• Version 4 and the GHO expansion plan are not directly affected by the governance controversy.
• The current valuation does not show a significant premium compared to competitors (Compound, Maker).

Overall sentiment polarity (as of December 22): Bearish sentiment prevails (approximately 70%) , the fear index is rising, and the mainstream narrative is "short-term avoidance of governance uncertainty." It is worth noting that while official channels emphasize that the agreement is functioning normally, market acceptance is limited.

Technical Analysis

Multi-time period price structure

1-hour timeframe (very short-term):

• RSI : 33.56 (close to oversold, but not yet reaching the key 30 threshold)
• MACD : Histogram -0.24 (bearish momentum, but signs of convergence)
• Bollinger Bands : Price is near the lower band at $152.67, in a squeezed state.
• ADX : 50.26 (Strong trend, but downward)
• CMF : -0.20 (Capital outflow)

4-hour chart (short-term):

• RSI : 25.17 (Deeply oversold, probability of rebound increases)
• MACD : Histogram -1.95 (Bearish acceleration)
• Bollinger Bands : Lower band at $161.49, price moving along the band.
• ADX : 22.14 (Moderate trend)
• CMF : -0.14 (Continued outflow but weakening)

Daily chart (medium-term):

• RSI : 36.87 (Neutral to slightly weak, not oversold)
• MACD : Histogram -2.88 (strong bearish divergence)
• Bollinger Bands : The lower band at $165.07 has been breached.
• ADX : 23.25 (Trend established)
• CMF : -0.16 (Weak funding environment)

Common characteristics : Prices have broken below the EMA(12), EMA(26), SMA(50), and SMA(200) moving average systems across the board, forming a bearish alignment. OBV (On-Balance Volume) continues to decline across all timeframes, confirming the effectiveness of the selling pressure.

Key price levels :

• Immediate support : $152.67 (lower Bollinger Band on the 1-hour chart)
• Strong support : $147 (previous platform low)
• Immediate resistance : $165.07 (lower Bollinger Band on the daily chart)
• Strong resistance : $176 (previous high before the crash)

Derivatives Market Signals

Futures Positions Overview (as of 09:34 UTC, December 22, 2025):

Negative rates interpretation : Major platforms such as Binance, Bybit, and OKX all display negative rates, which means that short sellers are paying funds to long sellers, reflecting strong but not yet excessive short sentiment in the market.

Clearing data (24 hours):

• Total liquidation amount : US$1.72 million
• Long positions liquidated : $1.57 million (91.3%)
• Short selling liquidation : $160,000 (8.7%)

The liquidation led by long positions indicates that leveraged long positions suffered massive margin calls during the crash, further exacerbating the downward momentum.

Liquidation Heatmap Analysis (1-day cycle):

• Downside liquidation barrier : There are $8.02 million in long positions around $153.50; a break below this level would trigger forced liquidation.
• Upward liquidation barrier : Near $168.5, accumulated short positions of $6.98 million have formed a resistance zone.

The current price of $160.34 is between two major liquidation ranges, indicating a short-term balance in the market.

Options Market : No data available (insufficient or uncovered options liquidity).

Resistance and support level prediction

Long Scenario (Rebound Path):

1. Hold above $160 → Test $165 (lower Bollinger Band resistance on the daily chart)
2. Breaking through $165 → Challenging $168.5 (Short liquidation wall)
3. Hold above $168 → Fill the gap at $176

Short scenario (continued downward):

1. A drop below $160 would quickly test $153.5 (the bullish liquidation wall).
2. Breaking through $153 → Seeking strong support at $147
3. A break below $147 opens up potential for a move to $140.

Probability Assessment : Based on the RSI oversold condition (4H 25.17) and the completion of long liquidation, there is a 40% probability of a technical rebound to $165 in the short term (24-48 hours); however, the strong divergence of the daily MACD and the unresolved governance uncertainty make a 60% probability of a drop to the $153-$147 range in the medium term (1-2 weeks).

in conclusion

The essence of Aave's current crisis is the outbreak of a contradiction between the ideal of decentralized governance and the reality of centralized operation. Aave Labs, relying on its control over the front end and its development discourse, is trying to maintain a dominant position in revenue distribution and brand ownership, while DAO token holders, based on governance rights, demand substantial control over core assets. The differences between the two sides on procedural justice, profit distribution, and power boundaries are difficult to bridge in the short term.

On December 22, a whale$13.75 million stop-loss exit sent a clear risk signal: some large investors lost patience with the governance prospects and chose to realize their losses and exit. Coupled with a net inflow of 84.7 million AAVE into exchanges, $1.57 million in long position liquidation, and negative-fee short sentiment, the market formed a negative feedback loop of "governance FUD → wavering confidence → release of selling pressure → technical breakdown".

The technical picture presents a textbook bearish formation: the entire moving average system has been breached, the RSI is oversold but shows significant divergence on the daily chart, and the liquidation wall distribution indicates a risk of cascading liquidations below $153. The contraction in open interest in the derivatives market, at $2.46 billion, coupled with negative fees, suggests that professional traders are inclined to avoid risk rather than aggressively long.

In the short term (within one week), key variables are the voting results of the governance proposal and whether DAO-Labs reaches a compromise; in the medium term (one month), it is necessary to observe the progress of the V4 technology upgrade and whether the redistribution of whale tokens is stable; in the long term (quarterly level), Aave's competitiveness as a DeFi infrastructure has not been fundamentally damaged, but its governance model needs deep reform to rebuild trust. The current valuation implies a high degree of uncertainty discount. Conservative investors are advised to wait for clearer governance signals (such as the proposal being passed or Labs publicly compromising), while aggressive investors can look for opportunities in the $153-$147 support zone, with a stop-loss set below $145.