The United States Securities and Exchange Commission (SEC) has closed its investigation into the Aave protocol without recommending any executive action, according to a communication dated December 16.
This decision ends a multi-year investigation into one of the leading lending platforms in decentralized finance (DeFi) and removes a significant regulatory hurdle for the sector.
Investigation closed without action
In the communication, the SEC states that it has concluded its investigation into the Aave protocol and currently has no intention to recommend an enforcement action.
However, the agency emphasizes that the closure of the investigation does not represent an acquittal and does not preclude future actions should the situation change. The communication follows the SEC's standard practice according to Securities Act Release No. 5310.
The investigation began between 2021 and 2022, during a period when the SEC had intensified scrutiny on crypto lending, staking, and governance token activities.
Aave, a non-custodial DeFi protocol, allows users to lend and borrow digital assets through automated smart contracts. The protocol operates without intermediaries and is managed by AAVE token holders.
The SEC's decision comes as Aave faces internal concerns regarding revenues and governance.
This week, some members of the DAO expressed concerns that a change to the front-end infrastructure may have diverted revenue generated from swap fees away from the Aave DAO treasury. The issue arose after the switch from ParaSwap to CoW Swap in the official Aave interface.
According to governance delegates, the change could reduce DAO revenues by up to 10 million dollars per year, depending on trading volumes.
Aave Labs responded by explaining in detail that the front-end is a separate product and that profit-sharing was previously voluntary.
For the moment, Aave exits regulatory scrutiny without penalties, following a pattern already seen as the SEC takes a step back on enforcement in the crypto sector under the leadership of Paul Atkins.
However, the protocol still needs to address open issues regarding governance, decentralization, and value creation as DeFi evolves.
