Chaos Labs Exits Aave After Three Years as Risk Manager — Here’s Why

TLDR

• Chaos Labs is leaving Aave after three years as its main risk manager, citing budget issues and strategic disagreements.
• The firm says managing Aave’s V4 upgrade doubles the workload but brings no matching increase in resources.
• Even with a proposed $5M budget, Chaos Labs says it was operating at a loss.
• Aave CEO Stani Kulechov says Chaos wanted to become the sole risk provider and replace Chainlink oracles — terms Aave rejected.
• Aave says operations continue normally, with LlamaRisk stepping up to maintain risk coverage.

Chaos Labs has ended its three-year role as a risk manager for Aave, the decentralized finance lending protocol. The exit follows earlier departures from contributors ACI and BGD Labs, adding to concerns about internal stability at Aave.

Chaos Labs founder Omer Goldberg confirmed the departure on X, saying the decision “was not made in haste.” He said the firm worked in good faith with Aave’s DAO contributors but ultimately felt the engagement no longer reflected how risk should be managed.

Since joining in November 2022, Chaos Labs helped oversee risk across Aave’s lending markets. During that period, Aave’s total value locked grew from around $5 billion to over $26 billion, with no major bad debt events.

Goldberg cited Aave’s planned V4 upgrade as a central issue. He said the new version expands the scope of risk management, effectively doubling the workload while teams manage both V3 and V4 simultaneously during the transition.

Chaos Labs also said the economics were unworkable. Even with Aave offering to raise its budget to $5 million, the firm said it would still be operating at a loss.

Risk and Legal Exposure

Goldberg also raised concerns about legal liability. He noted there is no regulatory framework covering what a risk manager owes if a protocol fails.

This concern comes weeks after a user lost $50 million in a trade on Aave’s interface on March 12. Aave has since announced an “Aave Shield” feature to limit high-risk trades.

Aave’s Response

Aave Labs CEO Stani Kulechov offered a different account of the split. He said Chaos Labs had proposed becoming the sole risk provider and wanted Aave to replace Chainlink’s price oracles with its own.

Aave rejected both requests. Kulechov said the protocol has a strong track record with Chainlink and was not willing to abandon its two-layer risk model by removing LlamaRisk.

Kulechov also said Chaos had already been exploring winding down its risk consultancy services before the split was finalized.

He confirmed the departure has not disrupted Aave’s smart contracts, token listings, or network integrations.

Aave will now work with LlamaRisk and internal teams to maintain risk coverage going forward.

The departure comes as Aave continues to grow. The protocol crossed $1 trillion in cumulative lending volume in late February, a first for the DeFi industry.

The post Chaos Labs Exits Aave After Three Years as Risk Manager — Here’s Why appeared first on CoinCentral.