DeFi Drama Unfolds: Aave and MakerDAO at Odds Over Spark Protocol Profits

The decentralized finance (DeFi) world is currently witnessing a growing rift between two of its most prominent players, Aave and MakerDAO. The dispute centres around the profit-sharing agreement for Spark Lend, a lending protocol born from an Aave v3 fork.

Marc Zeller, founder of the Aave Chan Initiative (ACI), has ignited a firestorm in the Aave governance community by questioning the integrity of MakerDAO’s accounting practices. Zeller alleges that creative bookkeeping has resulted in Aave receiving a mere 1% of Spark’s profits, a far cry from the agreed-upon 10%.

The controversy stems from a deal struck in February 2023, when Phoenix Labs, the entity behind Spark, proposed a profit-sharing arrangement with Aave. The agreement was set to activate once the DAI market size on Spark reached 100 million and would last for two years. Initial projections suggested Aave would receive approximately $2 million worth of DAI over this period.

Fast forward to today, and Spark’s Total Value Locked (TVL) has soared to an impressive $2.8 billion. Analysts at Messari estimate the protocol has generated a whopping $42 million in revenue over the past year. These figures have only intensified the scrutiny of the profit-sharing deal.

Zeller argues that MakerDAO is the primary beneficiary of interest paid by Spark users, given that 97.8% of DAI liquidity in Spark comes from MakerDAO-minted DAI. He further contends that the close relationship between Phoenix Labs and MakerDAO effectively makes them a single entity.

The Aave community now faces a critical decision, with three options: declare Spark in breach of the agreement, approve new dynamics in the Aave-Maker relationship, or maintain the status quo.

Meanwhile, discussions are heating up on MakerDAO’s governance forum. BA Labs, a MakerDAO ecosystem actor, has proposed a payment formula that would result in a $1.06 million payout to Aave. However, Zeller’s calculations paint a vastly different picture, suggesting Aave should be entitled to a share of an estimated $89 million annual revenue.

Adding fuel to the fire, MakerDAO founder Rune Christensen expressed disappointment with the confrontational approach taken by some parties. “I’m not very impressed with how this idea of a ‘reset’ of the relationship was introduced with threats and hostility coming out of nowhere,” Christensen stated, emphasizing that Spark was created to foster closer collaboration with Aave.