Grayscale's Spot AAVE ETF Filing: DeFi Goes Institutional

Grayscale Investments submitted Form S-1 to the U.S. SEC on February 13, 2026, to convert its existing Aave Trust (GAVE) into a spot exchange-traded fund, marking the first proposal to bring a DeFi lending protocol's governance token to NYSE Arca. With Coinbase as custodian and a 2.5% sponsor fee payable in AAVE, the filing—following Bitwise's December bid—ignited a 22% token rally from $106 to $128, as markets price in institutional DeFi access and potential SEC clarity on altcoin ETFs.

The Filing: S‑1 Details and Mechanics

Grayscale filed Form S‑1 with accession number 0001193125-26-051643 on February 13, 2026, seeking SEC approval to convert its Aave Trust into the Grayscale Aave Trust ETF (ticker GAVE) for listing on NYSE Arca. The trust, launched in 2021 with modest $858,597 AUM at $119 per share, proposes Coinbase as custodian and prime broker, with a 2.5% annual sponsor fee paid in AAVE tokens—higher than BTC/ETH ETFs but standard for Grayscale's altcoin products.

The ETF would track AAVE's spot price, enabling brokerage exposure without direct custody. This procedural step follows Grayscale's successful BTC/ETH conversions, signaling confidence post‑Trump SEC shifts under Paul Atkins. Coinmarketcap

AAVE's DeFi Dominance: Why Now?

Aave, the leading DeFi lending protocol, secures $15B+ TVL across lending pools, flash loans, and governance via AAVE tokens. Down 82% from ATH, AAVE trades ~$127 (Feb 16), with open interest jumping from $153M to $237M post‑filing. The protocol's permissionless markets, risk isolation, and yield generation make it DeFi's flagship for institutional translation.

"The filing marks a significant milestone for DeFi's path into traditional finance. A governance token ETF for a decentralized lending protocol is a new category entirely."

— Analysis Coira

Grayscale's move expands beyond BTC/ETH, tapping DeFi's $100B+ sector as SOL/XRP ETFs launch.

Competition Heats: Bitwise Leads the Race

Bitwise filed first in December 2025 for 11 altcoin ETFs, including AAVE, targeting March 16, 2026 approval—a two‑month head start. Grayscale's bid creates pressure, with analysts noting competitive fees and first‑mover edge could decide winners.

Bitwise's strategy emphasizes low costs and broad exposure; Grayscale leverages trust AUM and NYSE prestige. SEC review could span months, but Atkins' pro‑crypto stance accelerates timelines.

Market Reaction: 22% Surge and Derivatives Spike

AAVE exploded 22% from $106 to $128 by Feb 15, stabilizing ~$127 amid BTC ~$68K. Derivatives OI doubled, signaling speculation. Grayscale's $12M trust (2021 peak) limits immediate inflows, but approval could catalyze billions.

Sentiment ties to altcoin ETF pipeline: SOL, XRP live; LINK, UNI pending. AAVE ETF validates DeFi governance as investable.

Legal Bombshell: Challenging "Security" Status

Blockeden notes the filing implicitly argues AAVE isn't a security—SEC approving would undermine Gensler‑era claims, boosting DeFi broadly. Coinbase custody reinforces non‑security treatment.

Post‑Atkins dismissals, this tests boundaries for UNI, COMP.

Technical and Fee Structure

2.5% fee (AAVE‑paid) exceeds BTC's 0.2%, but Grayscale trusts historically discount to NAV. Coinbase handles custody/execution, mirroring BTC/ETH ETFs.

Road to Approval: SEC Timeline and Risks

S‑1 review: 3–6 months, effective declaration needed. Bitwise leads; Grayscale chases. Risks: volatility, liquidity, SEC caution on DeFi.

Optimism high post‑BTC/ETH success ($57B inflows).

DeFi Meets TradFi: Implications

Approval mainstreams DeFi yields via brokers, unlocking pensions/401ks for Aave pools. Rivals UNI, MKR race; boosts protocol treasury.

Global: EU MiCA, HK licenses align; AAVE ETF cements U.S. leadership.

Beyond AAVE: Grayscale's Altcoin Push

Grayscale eyes LINK, DOT; filing fits 2026 diversification. AAVE pioneer status could accelerate pack.

Grayscale's bid heralds DeFi's Wall Street era—governance tokens as ETFs, yields for masses. Watch SEC effectiveness; AAVE's rally hints at flows ahead.