Is AAVE price at risk as major delegator ACI exits after $51M funding dispute?

AAVE price remains at risk of a crash as a major delegator and service provider, the Aave Chan Initiative, has chosen to exit the Aave DAO following an internal governance dispute within the ecosystem.

According to a statement on Tuesday, the Aave Chan Initiative, one of the most prominent service providers for the Aave DAO, said its engagement with the protocol will be wound down over the next four months following governance friction. 

Before the top delegator’s departure, it will, however, continue to ensure a graceful transition of its systems and governance infrastructure to the DAO. 

According to ACI founder Marc Zeller, the group will shift its role to an independent service provider where it can advocate for its own proposals. 

The Aave governance dispute being referenced arose in December after Aave Labs redirected roughly $5.5 million in swap fees to a company-controlled wallet rather than the DAO treasury. 

The conflict has also cost the protocol the departure of BGD Labs, a core technical contributor to the Aave DeFi protocol. 

They said they will cease involvement when their contract is terminated on April 1, citing an “asymmetric organizational scenario” and centralization concerns. 

Such governance disputes within decentralized organizations tend to spook investors as they typically remain uncertain over the future direction of the project. 

Recall that Zcash, one of the leading privacy tokens, suffered a similar setback when the Electric Coin Co. team faced a leadership transition and potential funding changes after a governance dispute. The token had crashed significantly following the news before settling.

Aave (AAVE) price has dropped nearly 10% since ACI announced its exit.

Besides the latest internal turmoil, AAVE price also remains at risk of more downside as its network growth stalls. Per data from DeFiLlama, the total value locked on the network has fallen from over $36 billion around mid-January to $26.7 billion in March. 

At the same time, weekly network revenue has plummeted by 62% to $1.62 million, down from $4.31 million recorded in early February.

Such weakness in on-chain metrics suggests that network activity has dwindled, which could impact investor sentiment as they look for more active projects.

On the daily chart, AAVE price has been trading within a descending parallel channel pattern, which it has respected since late August last year.

This is a bearish continuation pattern and is a confirmation that the asset remains in a downtrend unless it breaks the upper trendline, which is currently around $120.

Technical indicators also seem to suggest bears have the upper hand for now. The Aroon Down at 71% in comparison to the Aroon Up at 0% suggests sellers are exerting greater pressure on the market. Meanwhile, the MACD lines have also remained below the zero signal line, reinforcing the negative momentum.

As such, AAVE price stands at risk of falling to its April 2024 low around $70 should bulls fail to defend current levels.

On the contrary, a break above the $120 mark, which would represent a breakout from the channel pattern, could trigger a reversal from the long-term downtrend.