Aave Shields Against Scroll's Governance Chaos

Aave, the leading decentralized lending protocol, has taken steps to reduce its exposure to Scroll, an Ethereum layer-2 network, amid ongoing instability in the latter’s decentralized governance model. On Sept. 11, the Aave Chan Initiative (ACI)—a key governance body within the Aave ecosystem—submitted a proposal aimed at mitigating risks associated with Scroll-based assets. The proposal outlines a set of defensive measures, including raising the reserve factor for all listed assets to 90%, lowering supply caps to previous levels, and reducing borrowing caps for all borrowable assets. These adjustments are intended to limit exposure and enhance the protocol’s resilience in the event of further governance disruptions.

The urgency of Aave’s decision is closely tied to the recent turmoil within Scroll’s decentralized autonomous organization (DAO). On the same day that Aave submitted its proposal, Scroll announced it had paused new proposals within its DAO to reassess its governance model. The move is part of a broader strategy to experiment with governance structures that prioritize efficiency, effectiveness, and alignment within the community. Scroll also emphasized that the pause would allow the organization to stabilize in the short term while laying the groundwork for sustainable growth.

Aave’s actions reflect a broader trend of DeFi protocols proactively adjusting to governance risks. According to data from DeFiLlama, Aave currently holds approximately $6 million in total value locked (TVL) on Scroll, making it one of the smaller liquidity pools within the protocol’s ecosystem. Despite the relatively small exposure, ACI emphasized the importance of conservative risk management, given the volatility in Scroll’s governance landscape. The proposal is set to be implemented via the Direct to AIP process, a streamlined mechanism that enables rapid deployment of urgent changes.

Internally, Scroll has experienced significant leadership instability. Olimpio, a prominent Scroll delegate, reported that the DAO’s lead figure, known as Eugene, had resigned earlier in the week. This departure has led to uncertainty among the community, with several key initiatives—including treasury management, the formation of a governance council, and a DAO timelock test—now stalled. The lack of leadership clarity has further underscored the need for Aave to reassess its position on Scroll-based assets.

The move by Aave highlights the growing importance of governance stability in DeFi ecosystems. As layer-2 solutions continue to evolve, protocols like Aave are increasingly scrutinizing their exposure to chains with immature or unstable governance structures. By implementing risk-reduction strategies, Aave aims to protect its users and liquidity providers while maintaining operational flexibility in a rapidly changing environment.