A major DeFi leader wants to solarize the world — again
DeFi developers, Aave Labs, want decentralized finance to flex its might against climate change. And, also, (just by the way) $50 million, too.
Aave creator Stani Kulechov has clearly been reading his Ezra Klein, and it’s giving me feelings.
Do I need the conversation about reimagining of the Democratic Party spilling over onto Crypto Twitter? No, I do not.
Kulechov’s creation, Aave, is now the largest pool of money in all of decentralized finance (DeFi), with $27 billion locked in its smart contracts. Right now, Kulechov really wants the DAO he created to give the company he created (give or take) $50 million to fund its next year of work. And! Oh, by the way, he also has a plan to halt climate change along the way.
Kulechov called his vision of DeFi-powered green energy “Funding Abundance.”
“Abundance,” huh?
In a conversation about the proposal he had on an Unchained livestream Monday, Kulechov said, “We want to bring the energy back from DeFi summer, when everyone was cooking."
Longtime observers of the weird world of DeFi governance may remember a similar pitch when Rune Christensen put out the call in 2021 for MakerDAO (now the Sky Network) to go big on solar power, with “The case for Clean Money.”
We will circle back to that.
Meanwhile, recent observers of the very online intelligentsia will have pinged on that proposal language — hard (as I did). It’s that word “abundance.” That’s the tri-syllabic slogan for Ezra Klein and Derek Thompson’s vision for a Democratic party that isn’t such a freaking bummer all the time.
Big picture, Abundance pictures a future of enormous economic wins and a politics that optimizes those to expand opportunity, blah ginger blah ginger blah ginger.
But I’m not here to litigate the American Left’s vision board!
I just did not expect Substack progressivism to pirouette into the middle of the big crypto governance fight of the moment, Aave Labs vs. Aave DAO and the nebulous future of on-chain governance itself.
There’s already a lot going on.
“Aave will win”
Let’s recap the governance discontent that brought us to this $50 million ask and a side helping of solar power.
Aave is one of the oldest DAOs. Because it’s old, it launched amidst unknown unknowns, leaving unnoticed questions unanswered as it sailed off into the monster-infested waters of open finance’s high seas.
Aave Labs, the company that built the giant money market, Aave, has controlled Aave.com, the favorite frontend for accessing Aave’s smart contracts, depositing funds and making loans.
Controversy broke out late last year after the company decided to start keeping the cut of revenue earned off of Aave.com. Basically, if you used the site to access the money market, it charges a little fee, which had formerly — informally — gone to the DAO treasury.
So, also informally, Aave Labs redirected that revenue back to its own coffers. Which, according to some on-chain sleuthing, led to something like $200,000 worth of ETH per week redirected from the DAO to the company.
"We've always had this role of being kind of like a permanent contributor into the Aave protocol. Everything we simply build from Aave Labs, the idea there is to expand the economical activity of the protocol," Stani Kulechov, Aave founder, on the Unchained livestream.
Naturally this reallocation led to an amicable series of discussions between the two entities where they gradually negotiated a mutually beneficial arrangement.
J/K! This is crypto! People flipped out!
So then the Labs side put up a proposal for the DAO to vote for revenue to be explicitly re-directed to the DAO, only for AAVE whales to quickly vote down the proposal.
Very likely the same people who wrote it also killed it — to make a point.
But partisans for the DAO opted to protest the vote, very visibly abstaining, and losing the battle while seemingly gaining ground in the war.
Which brings us to the present.
On Feb. 12, Aave Labs submitted a fresh proposal.1 That’s where Aave Labs requested that aforementioned $50 million, from the Aave DAO treasury, to build revenue generating Aave products.
It also commits, if the proposal is passed, to turn all the revenue it earns from its Aave-branded products.
While also asking the DAO to commit to getting its new version, Aave v4, finished and deployed (for much more on v4, check out the second episode of Diamond Rhino).
Plus, the proposal would turn Aave brand assets over to a new DAO-controlled foundation.
75,000 AAVE
If you’re reading this, I assume you’re generally familiar with DAOs, crypto governance, etc, but let’s put a bulleted explainer in here just in case. If you know what’s up with DAO governance, you can skip these:
To outsiders, it might seem weird that the founder of a project would be in a tussle with the project he created. It’s sort of like if someone founded a small nation, made it a democracy and then its citizens moved to throw out his cabinet.
DAOs are governed by their tokens. At this point in DeFi history, most DAOs, realistically, are still largely controlled by their creators because they have enough tokens to dominate DAO votes. Aave is no different.
Because in DAOs, it’s not one man, one vote. Every token votes, so whales tend to dominate decisions.
But! Aave is also a rare example of a project that has been successful enough that normal people HODL AAVE and really care about the protocol’s direction.
The reason why I want to make sure you have a handle on governance is because there is a strange governance wrinkle to the Labs funding request: The company is asking to receive a third of its funding in AAVE tokens over a two-year period.
Cynical take: Labs wants the tokens to further dominate governance and ensure that it gets its way on key decisions, such as securing its funding for next year.
However: Labs has promised not to vote those tokens. Plus, the Labs side already seems to have enough AAVE to do that anyway.
Aligned take: Labs wants AAVE because their budget will go further if it can spin out good products.
So the tokens align it with doing good work.
My take: These kinds of arrangements are not unheard of in the DeFi world, but to me it seems that a better norm would be just to ask for a budget in dollar terms.
On the stream Monday, Kulechov justified the AAVE request by saying that “the value capture is going to the token-centric model, and that is where we and the whole team is fully focused on.”2 I get the theory here.
But in the midst of a governance fight between the AavElite and the AaveLumpen, asking for more of the kingdom’s keys seems like an unforced optics error.
And on that livestream with Unchained Monday, Kulechov, to my ear, basically dodged questions about why he needed so much AAVE (look for that around the 40 minute mark).
He also, in my opinion, dodges when asked why the DAO shouldn’t break the big proposal into a few smaller proposals, letting the DAO consider them piece-by-piece.
"There's always criticism about DAOs and efficiency, but something people forget ... there's this wide set of transparency where anyone can go and understand about what is going on and express opinions,” Kulechov on Unchained.
That said, let’s set aside the form of funds, and just look at the funding. Aave Labs is basically saying it wants to become permanent staff of the DAO (or so it seems).
“The funding requested is a significant expansion of scope beyond historical funding. To date, Aave Labs has largely self-funded the cost of building and scaling the product layer,” the proposal notes.
Kulechov made a strong point about this approach on the stream: Labs could be in a position to earn a lot of money directly off Aave-branded products that it has built and that it could build. Instead, it’s agreeing to give all that up and turn it over to the DAO in exchange for direct funding.
And, of course, it has to go to the DAO for that funding every year. If it quits delivering, the DAO can find new staff (theoretically, but only really if more whales arise).
However, Marc Zeller, who serves as the rhetorical pugilist for the DAO, and Multicoin Capital, a major investor in the space, both have notes about the specifics of the proposal.
DeFi Saves the World, pt II
“Abundance happens when technological breakthroughs, combined with the right financing and distribution, collapse costs so dramatically through economies of scale that the constraint effectively disappears, not for one person, but for billions,” Kulechov, from “Funding Abundance.”
This thing about abundance popped up like a woodsman lighting his cigar round the bend while you’re out on a night hike alone.
“Funding Abundance” is a very, very long essay, with many financial history lessons. When it finally gets to DeFi, it argues that Aave is well positioned to offer solar projects financing.
By doing so, it would open up this whole new tranche of less volatile collateral. Aave was built on crypto collateral, but solar finance would build physical stuff globally, proving DeFi to be much more than money Legos.
Plus, he notes, Solar-financing tends to pay off well, because most of the cost is up front and revenues tend to be easily modeled. So Aave should embrace real-world assets that give Aave users that want it access to solar-powered yield.
“It is time to be opinionated about the future and to back the assets that fund it,” Kulechov writes. “I believe that funding energy transitions is by far the largest opportunity for Aave.”
Neat.
Kinda random, though, no?
It’s hard for me not to read the “abundance” push as a way to make AAVE holders and the broader DeFi community see Kulechov and Labs as munificent visionaries. And it’s hard not to see that as a way to engender goodwill across the ecosystem, as Labs tries to once again take the lead on Aave’s overall direction.
Maybe I’m just too jaded by the PR-industrial complex that I’ve steeped in for the last decade, but “Funding Abundance” is giving spin.
But — it takes me back.
Rune Christensen, as I noted above, made a similar green push in 2021.
And a year later, Christensen admitted that MakerDAO had made no progress in terms of funding technology that could slow the climate collapse.
“Maker has accomplished absolutely nothing, and the world as a whole has not only accomplished nothing, but rather accelerated the crash with things like coal burning and renewed fossil fuel investments due to the Ukraine war putting the nail in the coffin on any kind of long-term thinking,” he wrote.
There was one solid proposal, but it didn’t go anywhere. Sky is doing real-world assets, but it’s mostly U.S. Treasuries, with a few other smaller-scale financing initiatives. DeFi’s Green New Deal has been “no deal” so far — unless you count real estate for an electric car shop.
Perhaps it’s just that beating the global banks is hard enough without taking on the fossil fuel industry, too?
Will Kulechov’s abundance narrative go any differently than Christensen’s “Clean Money” did?
I know my bet.
Look, I’ve been into going green since the seventh grade, but, as a DeFi proponent, it’s a bit alarming for me to see rhetoric straight out of Democratic Party discourse showing up amidst bear market BUIDLing.
“Aave will win”? How? With messaging modeled off the political camp that loves nothing more than giving self-righteous flair to snatching defeat from the jaws of victory?
It reminds me of that whole regenerative finance meta around 2019 (for example: Klima DAO), which, as I understand it, largely left participants disappointed. Saving the world has not moved a lot of tokens and it has moved even less world.
The vision of open finance funded abundance may or may not be the correct one, but the timing feels wrong right now.
Aave Labs has got the power, but its messaging’s got no game.
DeFi and cryptocurrency will win in the near term by gradually increasing the breadth and sophistication of its financial products.
Treasuries are already thoroughly on chain.
While bespoke lending products and equities are coming online now.
It is enough that crypto’s denizens simply take more of money’s movements out of the black boxes. Opening finance up would be a very big step for the commonweal.
Get blockchains effectively interfacing with Main Street, plug magic space money into the actual ground. That’s the first order of business.
Once the interface between the real and the chains gets sorted, then the demigods of open finance can maybe worry about fixing the atmosphere, but let them finish fixing the money first.
Technically, the proposal is a “temp check.” In DeFi governance, this is like when a regulator puts out a draft regulation for comment. There is a vote on a temp check but it doesn’t decide anything. The vote outcome and the comments help determine if the proposal will be submitted for a final actual governance vote and whether or not it should be modified in some ways.
As it happens, Aave’s $73 million treasury has all kinds of tokens.