What to know:
- Chaos Labs is leaving Aave due to deep disagreements over risk management, rising workload, and misalignment with its operational standards.
- The firm says managing Aave’s expanding V3 and upcoming V4 systems would require at least $8 million, warning that continuing under current conditions would mean operating at a loss or lowering risk standards.
Chaos Labs has announced it will no longer act as a managing risk platform for Aave after nearly three years.
The decision marks the end of the major partnership that existed in the DeFi space. Chaos Labs said it is leaving due to some disagreements between the two platforms over how risk should be managed going forward.
Source: governance.aave.com
Since 2022, Chaos Labs has played a central role in helping to oversee the risk across Aave’s V2 and V3 markets. During that time, Aave grew significantly, with total value locked rising from about $5.2 billion to over $26 billion.
Despite this growth over the years, Chaos Labs said the relationship no longer aligns with its company standards. The firm explained that the issue is not just about money, but instead a deeper difference in how risk should be handled at Aave.
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One major concern is the growing workload. Several core contributors have left the Aave ecosystem, increasing operational pressure on remaining teams. At the same time, the upcoming V4 upgrade introduces a new system architecture that requires additional tools, infrastructure, and ongoing monitoring.
Chaos Labs also pointed to financial challenges. According to the firm, it has been operating its Aave engagement at a loss for years. Even with a proposed increase to a $5 million budget, the company said it would still not meet the level needed to properly manage risk at the scale Aave operates.
The firm estimates that at least $8 million would be required to cover risk management across both V3 and V4, as well as ongoing institutional support. It compared this to traditional banks, which typically spend between 6% and 10% of revenue on risk and compliance, while Aave has allocated a much smaller share.
Chaos Labs Concerns Over Aave V4 Transition
A key issue highlighted by Chaos is the transition from V3 to V4. The firm described V4 as a completely new system with different architecture, new liquidation logic, and more complex interdependencies between markets. This means that existing risk tools cannot simply be reused and must be rebuilt from scratch.
In the end, the firm said continuing under the current structure would mean either lowering its standards or continuing to operate at a loss, both of which it doesn’t want to undergo. Chaos Labs stated that it still believes in Aave’s future but could not continue under conditions it sees as misaligned with proper risk management.
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