Varen is not DC, he never was. Varen started his rebellion because he could not stand that the reach emperor allowed daedra worship and made it legal. Varen being a follower the divines called up arms to overthrow the reachmen line of emperors and restore the empire under Imperial rule, as this was unacceptable to legalize daedra worship. Varen's rebellion was only consisted of imperials from colovia as well as the tharns from nibenay and some of the imperial military that defected to varen's rebellion no other outside help from factions outside of Cyrodiil. Varen did not have help from the daggerfall covenant and is not associated with them at all.
The daggerfall covenant on the other hand, allows daedra worship under high king emeric, for example he allows pariah abbey, an Azura temple with Azura cultists to live close to wayrest the capital of the daggerfall covenant and even acknowledges their presence and see's them as peaceful while letting them stay there without issue because they give charity. Also, the orcs who are apart of the daggerfall covenant worship malacath who is a daedra. Varen would never allow this being such a faithful follower of the 8 divines and even started a rebellion because of the legalization of deadra worship.
In conclusion, Varen was not apart of any of the 3 alliances (DC,AD,EP) or received help from them. He was an independent rebellion uprising that sought to overthrow the reachmen line of emperors and re-establish an Imperial dynasty on the ruby throne and abolish daedra worship again. The daggerfall covenant liked what Varen was doing with his rebellion and goals, but was not associated with him. A similar example: In ESO, the dragonguard in southern elsweyr are technically operating in dominion land at the end of the storyline, but are not associated with the dominion or apart of it's military. The dominion like that the dragonguard are defending elsweyr and its civilians, but the dragonguard are not part of the dominion military and the dominion can't claim that the dragonguard is theirs. Sai Sahan's Dragonguard is independent of the 3 alliances just like Varen's rebellion is independent of the 3 alliances.