DeFi Could Lead Us Out of Crypto Winter

Bear markets create huge opportunities for investors who are paying attention. There's one brewing in DeFi right now.

In bear markets, investors tend to ignore good news. That can create opportunities for people who are paying attention. There was a big example of this last week.

Aave Labs—the development team behind the largest decentralized lending protocol in crypto—published a governance proposal called "Aave Will Win."

I thought I'd explain what it is, why it matters, and why I think decentralized finance (DeFi) may help lead us out of the 2026 bear market.

The Token Value Problem

One of my highest-conviction beliefs is that the next crypto bull market will be focused on fundamentals. Crypto investors are tired of promises; they want to see real users, revenues, and value.

DeFi fits the bill.

DeFi protocols are very real. Uniswap, the leading decentralized spot exchange, regularly trades more volume than Coinbase. Aave, the leading lending protocol, does over $100 million per year in revenue. These are serious businesses with real users that have proven themselves over the years.

But DeFi-linked crypto assets, unfortunately, have been poor investments. Even though usage on their platforms is way up, the tokens are way down. Aave has fallen 50% over the past year. Uniswap has been flat over the past five years!

The primary problem for DeFi tokens is their tokenomics—the dynamics that drive their value. Most DeFi tokens were created as "governance" tokens: They allow you to vote on how the protocol operates, but have no claim on revenues or profits.

There is a good reason for this. When the majority of DeFi tokens launched, the SEC was aggressively hostile toward crypto—particularly toward any token it could classify as a security. The primary framework the SEC used to make this determination was the “Howey test,” which asks whether an investor expects to profit from the efforts of others. You can’t expect to profit if the token has no way to accrue value, so token designers stripped out any claim on revenue as a legal survival strategy.

It worked, in the sense that the SEC allowed DeFi tokens to exist. But the result was a bunch of lightweight governance tokens with no real tie to the underlying economics of the protocols.

Enter Aave’s New Proposal

Like most DeFi tokens, Aave has struggled with this dynamic over the years. For most of its existence, it was a governance-only token with little economic tie to the underlying protocol’s growth.

Things improved in 2024 and 2025, when the “Aavenomics” upgrade created a buyback mechanism, whereby a portion of the fees generated by the protocol were used to buy back Aave tokens. But a core tension remained: Aave Labs, the development company that created Aave, retained an ability to direct revenues to itself rather than to token holders. This tension bubbled over in December 2025, when Aave Labs directed $10 million of swap fees to itself.

Who ought to benefit from Aave’s growth, people asked. Aave Labs or token holders?

This is what the "Aave Will Win" proposal hopes to address. In simple terms:

• Aave Labs commits to sending 100% of revenue from all Aave-branded products—the website, a forthcoming mobile app, the Aave Card, institutional services, etc.—directly to the DAO treasury (an entity controlled by Aave token holders).¹

• In exchange, Aave Labs receives a funding package: $25 million in stablecoins, 75,000 Aave tokens, and up to $17.5 million in milestone-based grants. That’s roughly $50 million all in, covering development of Aave V4 (the next-generation protocol architecture) and transfer of Aave’s intellectual property to token holders.

• Additionally, a new foundation will hold the Aave brand and trademarks on behalf of the community, rather than leaving those assets under Aave Labs’ control.

Why This Matters

This proposal aims to complete the Aave token’s journey from a governance-only asset into something that looks much more like equity in a high-growth financial services business. In theory, every dollar of product revenue will flow to the DAO. The DAO will decide how to deploy it—for example, whether to fund Aave’s development, buy back tokens, or build reserves. In that scenario, the token will become the central economic asset in the ecosystem, while the founding team will become a service provider that’s incentivized to keep building on the asset.

Of course, there are still questions.

Some prominent community members have pushed back on the proposal, calling the funding request from Aave Labs "extractive." Others have argued that the proposal bundles too many things together, making it hard to evaluate each piece on its merits. And important questions remain over how "revenue" will be defined and whether Aave Labs will retain discretion over it.

These are legitimate concerns. The details matter enormously, and the final structure may look different from what's been proposed.

But if you zoom out, a bigger picture is evident.

Aave—the second-largest DeFi token—is transforming from a governance-only token to one where token holders have a clean claim on protocol revenues. And if Aave can do it, so can other DeFi assets.

Closing Thoughts

The Aave proposal wasn’t the only good news in DeFi last week. BlackRock, the world’s largest asset manager, announced an investment in Uniswap tokens. Apollo, one of the world’s largest credit managers, announced an investment in Morpho, an Aave competitor.

Improving tokenomics. Institutional investment. Strong usage. In bear markets, you want to look for areas that show strength. It sure looks like DeFi is one of them.

Note:

(1) “DAO” stands for “decentralized autonomous organization,” an entity governed by token holders instead of a centralized body.

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