Grayscale Files S-1 for AAVE Spot ETF: DeFi Lending Giant Poised for Historic NYSE Listing
In a landmark move for decentralized finance, Grayscale Investments has submitted an S-1 application to the U.S. Securities and Exchange Commission to convert its AAVE Trust into a spot exchange-traded fund.
The filing, submitted on February 13, 2026, aims to list the proposed Grayscale AAVE ETF on the NYSE Arca with Coinbase serving as custodian. This development follows Bitwise’s December filing for an AAVE strategy ETF and arrives as Aave dominates the DeFi lending sector with over 51% market share and $3.58 billion in total value locked. If approved, the fund would provide institutional and retail investors with regulated exposure to AAVE, the governance token of the world’s largest decentralized lending protocol.
Grayscale’s AAVE ETF Filing: What the S-1 Application Reveals
The filing landed on a Friday that could reshape DeFi investment access. Grayscale Investments submitted its Form S-1 registration statement to the SEC on February 13, 2026, with the document officially accepted at 16:48:32 Eastern Time. This represents the formal step required to transform the existing Grayscale Aave Trust—currently a closed-end fund—into an exchange-traded product that would trade freely on a national securities exchange.
The proposed fund carries distinctive features that set it apart from earlier crypto ETFs. According to the filing details confirmed by multiple sources, the Grayscale AAVE ETF would charge a sponsor fee of 2.5% on net asset value, with the notable twist that this fee would be payable in AAVE tokens rather than cash. The fund intends to list on the NYSE Arca, one of the major U.S. exchanges, and has designated Coinbase as both custodian for the underlying AAVE tokens and prime broker for the operation.
This application follows a well-worn path Grayscale has pioneered. The asset manager successfully converted its flagship Grayscale Bitcoin Trust (GBTC) into a spot Bitcoin ETF after a landmark legal victory against the SEC, a decision that subsequently opened the floodgates for other spot Bitcoin and Ethereum ETFs in the United States. Grayscale has since applied to convert numerous other single-asset trusts, with the AAVE filing representing its latest effort to bring DeFi-native assets into the regulated ETF wrapper.
Why Aave? Understanding the Protocol Dominating DeFi Lending
Aave isn’t just another cryptocurrency—it’s the backbone of decentralized lending. For readers unfamiliar with the space, Aave functions as a lending protocol that allows users to borrow and deposit cryptocurrencies without going through a traditional bank or intermediary. Think of it as a automated, global savings and loan system where algorithms determine interest rates based on supply and demand, and users maintain complete control of their funds through smart contracts.
The protocol’s market position has reached historic levels in recent months. According to DefiLlama data cited by industry trackers, Aave’s share of the DeFi lending market has surpassed 51.3%, marking the first time since 2020 that any single protocol has commanded more than 50% of the sector. The platform currently holds approximately $3.583 billion in total value locked across its various deployments, more than five times the size of its nearest competitor Morpho, which holds about $686 million.
The token itself serves a specific governance function within this ecosystem. AAVE is the native token that enables holders to participate in the protocol’s decentralized autonomous organization, voting on proposals that determine everything from interest rate models to risk parameters and future upgrades. With a current market capitalization of approximately $1.8 billion and trading around $119 as of mid-February 2026, the token has seen renewed interest following recent governance developments.
The Race for AAVE ETF Approval: Grayscale vs. Bitwise
Grayscale may have filed this week, but it wasn’t first to the starting line. Bitwise Asset Management submitted paperwork for 11 separate single-token funds in December 2025, including an AAVE strategy ETF that would allocate approximately 60% of assets to the underlying coin and the remainder to related ETPs and derivatives. Those filings targeted an effective date in March 2026, potentially positioning Bitwise for a first-mover advantage if the SEC processes applications concurrently.
The competitive landscape now includes multiple players pursuing DeFi ETF products. Beyond the Grayscale and Bitwise filings, Aave has proven popular for investment vehicles in European markets, where 21Shares and Global X both offer Aave exchange-traded products. These European ETPs have provided a template for how Aave exposure might function in a regulated wrapper, though U.S. ETF requirements differ substantially.
What does “ETF filing fatigue” mean for this application’s market impact? Industry observers note that the era when a simple ETF filing would trigger double-digit price moves has passed. As CryptoSlate recently analyzed, markets now operate under “generic listing standards” approved by the SEC in September 2025, which allow exchanges to list commodity-based trust shares without the bespoke 19b-4 approval process that previously created binary events. For traders, this means an S-1 filing is no longer a shock that changes the probability of ETF approval from “maybe someday” to “likely soon”—it’s closer to background noise until actual listing occurs.
What an Aave ETF Means for DeFi and Institutional Adoption
The significance extends beyond just another crypto ETF approval. Aave represents the first major DeFi-native protocol to receive serious ETF consideration in the United States. While Bitcoin and Ethereum ETFs provide exposure to proof-of-work and proof-of-stake networks primarily positioned as commodities or stores of value, Aave operates fundamentally differently—it’s an active financial market with lending, borrowing, and yield-generating mechanisms. SEC approval would signal regulatory comfort with DeFi’s core value proposition.
Institutional investors have lacked clean, regulated access to DeFi tokens. The Grayscale Aave Trust currently trades over-the-counter, but like many closed-end trusts, it has traded at prices that can deviate substantially from its net asset value. Conversion to an ETF structure would eliminate this discrepancy, allowing institutional investors to gain exposure through their existing brokerage accounts with the confidence that shares will track the underlying token price. This matters for pension funds, endowments, and registered investment advisors who face restrictions on directly holding cryptocurrencies or using unregulated exchanges.
The 2.5% sponsor fee represents a premium compared to major crypto ETFs. For context, most spot Bitcoin ETFs charge between 0.2% and 0.9%, with Grayscale’s own Bitcoin ETF at 1.5% after multiple fee reductions. The higher fee structure for AAVE reflects several factors: the smaller asset base, the operational complexity of handling a DeFi governance token, and potentially the expectation that early adopters will accept higher costs for exclusive access. The fee being payable in AAVE itself creates an interesting dynamic where Grayscale becomes a ongoing accumulator of the token through protocol revenue.
Aave’s Governance Evolution: The Strategic Context Behind the Filing
Timing matters, and this filing coincides with major Aave protocol developments. Just two days before Grayscale’s S-1 submission, Aave Labs published a significant governance proposal outlining the protocol’s next strategic phase. The proposal seeks to designate Aave V4 as the core technological foundation for future development and would direct 100% of all revenue generated from Aave-branded products to the Aave DAO treasury.
These governance moves strengthen the protocol’s institutional positioning. The proposal includes establishing a sustainable development budget mechanism, creating a financial framework for DAO strategic growth, and implementing brand protection measures including formal trademark holding structures. For potential ETF investors, these governance enhancements matter because they demonstrate a mature, structured approach to protocol management that institutional gatekeepers expect to see.
Aave Labs explicitly notes the protocol’s dominant market position in its proposal. The team stated that Aave currently holds approximately 60% market share in decentralized lending, aligning with the DefiLlama data showing 51.3%. More importantly, they argue that “future growth potential remains enormous,” positioning this proposal as laying the “institutional and technical foundation for the next phase of protocol expansion”. This self-awareness about institutional readiness suggests the Aave community understands that ETF approval requires more than just a functional protocol—it demands governance predictability and operational transparency.
Aave by the Numbers: Current Market Position
- Total Value Locked: $3.583 billion across all Aave deployments** **
- Market Share: 51.3% of the DeFi lending sector, highest since 2020** **
- Token Market Cap: Approximately $1.8 billion** **
- Current Price: $119 (up approximately 9% on filing day)** **
- All-Time High: $661.69 reached in April 2021** **
- Nearest Competitor: Morpho at $686 million TVL (9.8% market share)** **
The Path Forward: Timeline, Hurdles, and What Investors Should Watch
The SEC review process follows a predictable but uncertain timeline. With the S-1 filing now accepted, the SEC will review the registration statement and provide comments. Bitwise’s December filings targeted a March 2026 effective date, suggesting a roughly 75-day review cycle for straightforward products. Grayscale’s filing could follow a similar timeline, though the SEC’s workload and any specific concerns about Aave’s DeFi nature could extend the process.
Several key questions will determine approval probability. The SEC will likely scrutinize how the ETF handles Aave’s governance features—specifically, whether the fund will participate in protocol governance or simply hold tokens passively. They’ll examine custody arrangements for a token that exists on a smart contract platform, and they’ll evaluate whether Aave’s classification under securities laws remains settled. The presence of regulated futures markets for Aave could strengthen the case, as the SEC has historically favored products with CFTC-regulated futures counterparts.
Investors should distinguish between filing news and actual availability. As the market’s muted reaction to recent crypto ETF filings demonstrates, S-1 submissions no longer trigger the excitement they once did. What matters for actual investment access is the effective date when shares begin trading, the distribution relationships that determine which brokerage platforms offer the product, and the fee competitiveness relative to alternatives like European ETPs or direct token holding.
European investors already have Aave ETP options for comparison. The 21Shares Aave ETP and Global X Aave ETP trading in Europe provide reference points for how institutional Aave products perform in regulated markets. Their trading volumes, premium/discount patterns, and correlation with Aave spot prices offer clues about how a U.S. ETF might behave.
FAQ About the Grayscale Aave ETF
What exactly is Grayscale proposing?
Grayscale has filed an S-1 application with the SEC to convert its existing Grayscale Aave Trust into a spot exchange-traded fund. The proposed Grayscale Aave ETF would hold AAVE tokens and issue shares that trade on the NYSE Arca, allowing investors to gain exposure to AAVE through a traditional brokerage account.
How is this different from the Grayscale Aave Trust that exists today?
The current Grayscale Aave Trust is a closed-end fund, meaning shares can trade at significant premiums or discounts to the underlying asset value. An ETF structure uses creation and redemption mechanisms to keep share prices closely aligned with net asset value, providing more predictable tracking of AAVE’s price.
Who is involved in making this ETF work?
Coinbase would serve as both custodian for the AAVE tokens and prime broker for the fund’s operations. The NYSE Arca would host the listing, and Grayscale Investments would act as sponsor, managing the fund and handling regulatory compliance.
What does this mean for AAVE’s price?
While ETF filings historically moved cryptocurrency prices, the market has developed “ETF filing fatigue” as generic listing standards make approval more routine. The actual listing date and subsequent inflows will matter more for price impact than the initial filing. However, AAVE did see approximately 9% appreciation on the filing day.
When might the ETF launch if approved?
Bitwise’s December AAVE filings target a March 16, 2026 effective date, suggesting a roughly 75-day review cycle. Grayscale’s filing, submitted February 13, would potentially launch in late April or early May 2026 if it follows a similar timeline and receives prompt SEC review.
Why This Filing Matters Beyond the Headline
Grayscale’s AAVE ETF application represents more than just another line on the crypto ETF tracker. It signals that DeFi protocols—the most innovative and potentially disruptive sector of cryptocurrency—are moving toward mainstream investment vehicles. For an industry that has long struggled with regulatory clarity, seeing Aave, a protocol that facilitates billions in lending without traditional intermediaries, advance toward ETF status marks genuine progress.
The filing also highlights the maturation of crypto markets. As one industry observer noted, markets now care more about listing venues, fee structures, and distribution relationships than about the initial paperwork. The Grayscale AAVE ETF’s 2.5% fee payable in AAVE, its Coinbase custody arrangement, and its NYSE Arca listing intention all provide concrete details that investors can evaluate—far more meaningful than the mere fact of filing.
For investors trying to position themselves, the key takeaway is patience. ETF approvals follow predictable but uncertain timelines, and the actual trading launch matters far more than the filing date. What’s worth watching now is whether other DeFi protocols follow Aave’s path, whether the SEC raises unexpected concerns about Aave’s governance model, and how institutional investors ultimately respond to the first truly DeFi-native ETF products.
The Grayscale AAVE ETF filing may not spark immediate price fireworks, but it plants a flag: decentralized finance is coming to the regulated investment world, and Aave is leading the way.