The path from closed-end crypto trust to exchange-traded fund is one Grayscale knows well. The firm's legal battle to convert its Bitcoin trust into a spot ETF cracked open the U.S. market for crypto investment products in 2024. Now it is running the same playbook for decentralized finance.
Grayscale Brings the Largest DeFi Protocol to Wall Street's Front Door
Grayscale Investments filed a Form S-1 registration statement with the U.S. Securities and Exchange Commission on February 13, seeking approval to convert its existing Aave Trust into a spot exchange-traded fund. The proposed product would trade on NYSE Arca under the ticker GAVE, holding AAVE tokens directly rather than through derivatives or synthetic exposure.
Coinbase has been named as both custodian and prime broker for the fund, giving the exchange a central role in what could become the first U.S.-listed DeFi governance token ETF. The sponsor fee is set at 2.5% of net asset value, payable in AAVE tokens, a structure that mirrors the fee mechanics Grayscale has used across its existing product line.
The filing comes just two months after Bitwise submitted its own AAVE ETF proposal in December 2025, part of a broader batch covering 11 separate crypto funds. Where Grayscale's fund would hold AAVE tokens directly, Bitwise's structure allows for up to 60% in direct AAVE holdings and at least 40% in securities such as other ETFs with AAVE exposure, a more hybrid approach designed to satisfy potential regulatory concerns about liquidity and redemption mechanics.
Why a $27 Billion Protocol Deserves Its Own Ticker
Aave is not a speculative micro-cap token trying to bootstrap relevance through an ETF filing. It is the largest decentralized lending protocol by total value locked, with over $27 billion in deposits spread across multiple chains including Ethereum, Polygon, Arbitrum, Avalanche, and Optimism. The protocol has processed billions in loans since launching in 2020 and generates real revenue from interest rate spreads and flash loan fees.
That scale is precisely what makes the ETF filing notable. Previous altcoin ETF filings have targeted tokens like SOL and XRP, both of which function primarily as blockchain infrastructure assets. AAVE represents something different: a governance token for a protocol that earns revenue from financial services. A spot AAVE ETF would give traditional investors exposure not just to a token's price, but to the growth trajectory of an entire DeFi lending market.
The token itself trades around $119 to $126, more than 80% below its all-time high of roughly $662 reached in May 2021. Its market capitalization sits near $1.8 billion. For an asset backing a protocol with $27 billion in TVL, that valuation gap between protocol deposits and token market cap is exactly the kind of discrepancy institutional investors are trained to investigate.
The Altcoin ETF Race Gets Its First DeFi Entrant
Grayscale's filing does not exist in isolation. It sits within an accelerating wave of altcoin ETF proposals that have reshaped the crypto investment landscape since the spot Bitcoin ETFs launched in January 2024.
The progression tells a story. Bitcoin ETFs came first, accumulating tens of billions in assets under management. Ethereum spot ETFs followed. Now the market is watching proposals for SOL, XRP, LTC, and DOGE ETFs work their way through regulatory review. The SOL and XRP ETF inflows already suggest capital is rotating into altcoin exposure.
AAVE marks the first pure DeFi governance token to enter this pipeline. If approved, it would signal that the SEC is willing to extend ETF treatment beyond Layer 1 infrastructure tokens into the application layer of crypto, the protocols that actually power financial services on-chain.
International markets have already moved. 21Shares launched an Aave product on Nasdaq Stockholm in November 2025, and Global X listed a similar product in Germany back in early 2023. U.S. investors have been locked out of these products, creating pent-up demand that Grayscale and Bitwise are now racing to serve.
What the 2.5% Fee and Coinbase Custody Mean for Investors
The 2.5% sponsor fee is high by traditional ETF standards but consistent with Grayscale's pricing across its crypto product suite. For context, Grayscale's Bitcoin ETF (GBTC) launched with a 1.5% fee before competitive pressure forced adjustments. A 2.5% fee on a DeFi token ETF reflects both the higher operational complexity and the early-mover pricing power Grayscale enjoys in niche crypto products.
Coinbase's role as custodian is worth noting. The exchange already custodies assets for the majority of U.S. crypto ETFs, including those from BlackRock and Fidelity. Adding AAVE to that roster is incremental for Coinbase but strategically important: it further cements the exchange as the default institutional infrastructure provider for regulated crypto products in the United States.
For individual investors, a spot AAVE ETF would eliminate the technical barriers that currently limit DeFi participation. No wallet setup, no gas fees, no bridging between chains, no staking or governance participation required. Just a ticker in your brokerage account. The tradeoff is clear: convenience and regulatory protection in exchange for the 2.5% fee and the inability to participate in AAVE governance votes or earn protocol revenue directly.
DeFi's Institutional Moment and What It Means for the Ecosystem
The timing of this filing intersects with a broader shift in how Wall Street views DeFi. Apollo recently committed 90 million tokens to Morpho, a DeFi lending protocol, signaling that traditional asset managers see on-chain lending as legitimate financial infrastructure. Aave's own founder recently pitched a $50 trillion abundance asset thesis that would tokenize real-world assets like solar installations and feed them into DeFi lending pools.
An AAVE ETF would accelerate this convergence. Institutional capital flowing into the token could boost governance participation, fund protocol development, and attract more Total Value Locked as investors view AAVE exposure as a proxy for the entire DeFi lending sector.
For crypto card users and the broader spending ecosystem, the implications are indirect but meaningful. Protocols like ether.fi already build card products on top of DeFi yield strategies. As institutional capital deepens DeFi liquidity, the yield opportunities that power staking rewards and cashback programs on crypto cards become more robust and sustainable. More liquidity in Aave means tighter spreads, more efficient lending markets, and more reliable yield for the protocols that connect DeFi to everyday spending.
Grayscale also filed simultaneously to convert its NEAR Trust into an ETF, though that fund held only approximately $900,000 in assets at the time of filing, making AAVE the clear priority in terms of scale and market interest.
FAQ
When was the Grayscale AAVE ETF filing submitted? Grayscale filed its Form S-1 registration statement with the SEC on February 13, 2026, seeking to convert its existing Aave Trust into a spot ETF listed on NYSE Arca under the ticker GAVE.
How does the Grayscale AAVE ETF differ from the Bitwise filing? Grayscale's fund would hold AAVE tokens directly, while Bitwise's proposal allows for up to 60% direct AAVE holdings with at least 40% in securities like other ETFs. Bitwise filed first in December 2025 as part of a batch covering 11 separate crypto funds.
What is the sponsor fee for the Grayscale AAVE ETF? The proposed sponsor fee is 2.5% of net asset value, payable in AAVE tokens. This is higher than most traditional ETFs but consistent with Grayscale's pricing across its crypto product lineup.
Can I earn DeFi yield through the AAVE ETF? No. The ETF would provide price exposure to the AAVE token only. Investors would not participate in Aave protocol governance, earn lending revenue, or receive any DeFi yield. Direct protocol participation requires holding AAVE in a self-custody wallet.
Is AAVE the first DeFi token to get an ETF filing? In the United States, yes. International markets already have Aave investment products, including 21Shares on Nasdaq Stockholm (launched November 2025) and Global X in Germany (launched 2023). The U.S. filings from Grayscale and Bitwise represent the first attempts to bring a DeFi governance token ETF to American investors.
Overview
Grayscale has filed to convert its Aave Trust into a spot ETF on NYSE Arca under the ticker GAVE, with Coinbase serving as custodian and a 2.5% sponsor fee. The filing makes AAVE the first DeFi governance token to enter the U.S. ETF pipeline, joining an accelerating wave of altcoin proposals that already includes SOL, XRP, and LTC. Bitwise filed a competing AAVE ETF proposal in December 2025 with a hybrid structure mixing direct token holdings and securities. With over $27 billion in total value locked, Aave is the largest DeFi lending protocol by deposits, and institutional demand for regulated exposure to DeFi's application layer appears to be growing. The outcome of these filings will signal whether the SEC is willing to extend ETF treatment beyond Layer 1 infrastructure tokens into the protocols that power on-chain financial services.
Recommended Reading
- Apollo Follows BlackRock Into DeFi With a 90 Million Token Morpho Deal That Signals Wall Streets Next Move
- Aave Founder Pitches a $50 Trillion Abundance Asset Thesis That Would Turn Solar Panels Into DeFi Collateral
- SOL and XRP ETFs Attract Inflows While Bitcoin and Ethereum Funds Bleed $838 Million in a Single Week
