Aave DAO’s latest move against MakerDAO spurs fears of ‘walled gardens’ in DeFi

In the past two months, Aave’s DAO has made a flurry of moves aimed to preserve alignment within the organization.

The market risk manager Gauntlet quit working with Aave DAO in late February after drawing criticism from the DAO for “moonlighting for direct competition.” Around the same time, Aave created a so-called protocol embassy on the Arbitrum DAO. This allowed Aave DAO members to delegate their Arbitrum governance tokens and have significant delegates or service providers vote on their behalf. Then in March, Aave’s community airdrop cut out users of the Morpho Aave optimizer, a protocol built on top of Aave that DAO members say draws revenue away from the base protocol.

And on Tuesday, an Aave DAO proposal went up that would set the loan-to-value ratio for MakerDAO’s DAI stablecoin to 0%, essentially preventing DAI from being useful as collateral.

There’s been a distinct premium placed on loyalty lately by the third-largest DeFi protocol. Some worry it may lead to a more segmented DeFi space.

The recent proposals have been largely led by the Aave Chan Initiative, a group that serves as the “primary delegate of Aave DAO.” The ACI was founded by Marc Zeller, who previously led integrations at Aave, which is now known as Avara.

When reached for comment, Zeller said Gauntlet has proven to be unnecessary for Aave, and the protocol embassy will help the DAO find synergies with other protocols.

As for cutting Morpho users from its airdrop, the “Aave DAO is free to redistribute their net profits as they see fit. Merit is designed to incentivize [user] behaviors benefiting the Aave DAO the most,” Zeller said.

The MakerDAO proposal was triggered by Maker’s proposal, and is subject to an executive vote. This proposal seeks to allocate up to $1 billion of Maker’s balance sheet into USDe and sUSDe; two buzzy but controversial tokens offered by the upstart stablecoin issuer Ethena. The proposal came from the Spark subDAO. Spark operates a lending protocol that started as a fork of Aave, a fact that Aave founder Stani Kulechov has made sure to highlight in the past.

The allocation would be facilitated through Aave non-alignment target Morpho, as Spark and Morpho recently struck up a partnership.

Zeller called Maker out for “reckless management and loss of all guardrails” on X while putting his proposal up on Aave’s governance forum. Kulechov took things a step further, commenting his support for “offboarding DAI from all the Aave markets completely.”

Zeller posted a separate proposal the next day that would deem Spark a non-aligned protocol and prevent Spark users from receiving Aave DAO airdrops.

“Well obviously I disagree with the decision, but it’s their decision to make,” Sam MacPherson, CEO of Spark contributor Phoenix Labs told Blockworks in regards to the Aave DAO’s proposal to set DAI’s loan-to-value (LTV) ratio to 0%.

Those outside of Aave’s spat with Maker expressed concern over a potential breakup between two DeFi titans.

“Some level of interdependency is healthy, as there are shared incentives that ensure the other side does not mess up. It would be a shame if that were lost,” Gnosis co-founder Martin Köppelmann said.

“Would suck if DeFi ends up as walled gardens,” Blockworks research analyst Matt Fiebach wrote on X.

Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the Forward Guidance newsletter.

Get alpha directly in your inbox with the 0xResearch newsletter — market highlights, charts, degen trade ideas, governance updates, and more.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.