TLDR
- After three years of partnership, Chaos Labs is stepping away from its risk management role at Aave due to budget constraints and strategic misalignment.
- According to the firm, Aave’s V4 upgrade would effectively double their workload without proportional resource allocation.
- Chaos Labs claims it was running operations at a financial loss despite a proposed $5M budget increase.
- Aave’s CEO Stani Kulechov contends that Chaos Labs sought exclusive risk provider status and wanted to replace Chainlink oracles — both proposals were declined.
- Aave maintains that protocol operations remain unaffected, with LlamaRisk expanding its role to ensure continued risk oversight.
The decentralized lending giant Aave has parted ways with Chaos Labs, its primary risk management partner for the past three years. This separation follows recent exits by other key contributors including ACI and BGD Labs, raising questions about the protocol’s internal dynamics.
Omer Goldberg, who founded Chaos Labs, announced the departure via X, emphasizing that the choice “was not made in haste.” He explained that while his firm maintained a collaborative approach with Aave’s DAO participants, the relationship had evolved to a point where it no longer aligned with the firm’s vision for effective risk management.
Chaos Labs began its engagement with Aave in November 2022, providing risk oversight across the protocol’s lending ecosystem. Throughout this partnership, Aave experienced substantial expansion, with its total value locked surging from approximately $5 billion to more than $26 billion, all while avoiding significant bad debt incidents.
A primary sticking point, according to Goldberg, was Aave’s forthcoming V4 upgrade. He emphasized that this new iteration significantly broadens risk management responsibilities, effectively creating dual workstreams as teams must simultaneously maintain V3 while preparing for V4’s launch.
“History suggests these transitions take months and even years,” Goldberg explained. “The workload during the transition doesn’t halve. It doubles.”
The financial equation proved equally problematic for Chaos Labs. The firm maintained that even with Aave’s offer to increase compensation to $5 million, the engagement would remain financially unsustainable.
Liability Concerns and Risk Exposure
Goldberg highlighted additional worries regarding legal accountability. He pointed out the absence of clear regulatory guidelines defining a risk manager’s liability when protocol failures occur.
“If things work, the work is invisible. If things break, the blame is not,” he stated.
These concerns gained relevance following a March 12 incident where a user suffered a $50 million loss during a transaction on Aave’s platform. In response, Aave has introduced an “Aave Shield” mechanism designed to mitigate high-risk trading activity.
Aave’s Perspective on the Split
Stani Kulechov, CEO of Aave Labs, presented an alternative narrative regarding the separation. According to him, Chaos Labs had requested exclusive status as Aave’s only risk provider and pushed for the protocol to substitute Chainlink’s price oracles with its proprietary solution.
Aave declined both proposals. Kulechov emphasized the protocol’s successful history with Chainlink and stressed the importance of maintaining its dual-layer risk framework, which includes LlamaRisk as a second independent voice.
Kulechov further revealed that Chaos Labs had already been considering a gradual exit from its risk advisory operations before the formal announcement.
He assured stakeholders that the transition has caused no disruption to Aave’s smart contract infrastructure, asset listings, or blockchain integrations.
Moving forward, Aave will rely on LlamaRisk alongside its internal teams to ensure comprehensive risk management continues without interruption.
This departure unfolds as Aave reaches new milestones. The protocol achieved $1 trillion in cumulative lending volume in late February, marking a historic achievement for the DeFi sector.
Get 3 Free Stock Ebooks
Discover top-performing stocks in AI, Crypto, and Technology with expert analysis.
- Top 10 AI Stocks - Leading AI companies
- Top 10 Crypto Stocks - Blockchain leaders
- Top 10 Tech Stocks - Tech giants
