Aave’s Governance Drama Sparks $8% Price Plunge in a Day

AAVE, the native token of the Aave protocol, is currently trading near $100, representing a 43% drawdown from its all-time high of $600. The decentralized finance (DeFi) token has experienced significant volatility, with price swings influenced by governance debates and broader market conditions. Recent discussions around a proposed allocation of World Liberty Financial (WLFI) tokens to Aave’s decentralized autonomous organization (DAO) sparked a sharp drop in AAVE prices, which fell by over 8% in a single day. While the Aave community and WLFI have since clarified conflicting claims about the proposal, the episode highlighted the sensitivity of DeFi tokens to governance-related uncertainty.

Despite these short-term fluctuations, Aave continues to play a central role in the DeFi ecosystem. The protocol, which allows users to supply liquidity, borrow assets, and earn interest in a non-custodial environment, has maintained strong institutional support and widespread adoption. Aave’s infrastructure has been instrumental in facilitating the growth of stablecoins like USDT and USDC, and the protocol is expanding across multiple blockchain networks. Its governance model, driven by AAVE token holders, remains a key differentiator, with decisions on asset listings and protocol upgrades made via on-chain voting.

Market conditions remain favorable for Aave, with the total value locked (TVL) in DeFi protocols now exceeding $167 billion, according to DefiLlama. This figure is approaching the sector’s all-time high of over $212 billion recorded in December 2021. Analysts point to a confluence of factors driving renewed interest in DeFi, including the anticipated friendlier regulatory environment post-2024 U.S. elections and the Federal Reserve’s signals of potential interest rate cuts. These developments have led to increased capital flows into DeFi lending and staking platforms, including Aave.

Technical indicators also suggest a bullish trajectory for AAVE, albeit with caution advised. On a weekly chart, AAVE has shown a gradual recovery since early 2025, supported by on-chain metrics such as the On-Balance Volume (OBV), which indicates growing buying pressure. However, the token faces key resistance levels at $417 and $527, reflecting historical price action from 2021. Additionally, 97.4% of AAVE’s supply is currently in profit, raising concerns about potential profit-taking and selling pressure. If a correction occurs, traders should monitor support levels around $300 and $280, where significant supply has been acquired historically.

Looking ahead, the interplay between Ethereum’s performance and Aave’s position as a key DeFi infrastructure provider could create a positive feedback loop for AAVE. As borrowing costs fall and institutional interest in DeFi grows, Aave is likely to see increased capital inflows. However, investors are advised to remain cautious and closely monitor on-chain activity and governance developments for signs of potential volatility.

Source: [1] Aave (https://aave.com/) [2] Aave drops over 8% on rumors of World Liberty Financial ... (https://cointelegraph.com/news/aave-tumbles-rumors-world-liberty-token) [3] Aave Price Today, Market Cap, AAVE Price Chart (https://coincheckup.com/coins/aave-token) [4] AAVE's Surge in DeFi: Heading Towards $400 This Week? (https://investx.fr/en/crypto-news/aave-surge-defi-heading-towards-400-dollars-this-week/) [5] DeFi revival fuels AAVE's rally: Is $400 on the cards? (https://ambcrypto.com/defi-revival-fuels-aaves-rally-is-400-on-the-cards/)