Chaos Labs Exits Aave Risk Role After Three Years

Since November 2022, Chaos Labs has priced every loan on Aave. The firm managed risk across all V2 and V3 markets and networks. According to Chaos Labs, the protocol recorded zero material bad debt during that entire period.

Why Chaos Labs Is Leaving Aave

The dispute centered on three issues. First, core contributors departed Chaos Labs, which increased the team’s workload. Second, Aave V4 introduces a Hub-and-Spoke architecture that expands the risk function’s scope and legal exposure. Third, the firm operated at a loss for years, even at $5 million.

Chaos Labs proposed an $8 million budget for V4’s expanded demands. Aave Labs supported $5 million but did not back the full proposal. Aave founder Stani Kulechov said the team was open to revisiting the figure later.

Kulechov also noted that Chaos Labs sought to become the sole risk manager. The firm also proposed replacing Chainlink oracles on new deployments. Aave Labs did not support those requests.

Goldberg framed the economics as only part of the problem. “Even if the economics were resolved, the misalignment on how risk should be managed at Aave would remain,” he wrote.

What Chaos Labs Built for Aave

The Chaos Labs Aave engagement covered real-time loan pricing, risk parameter updates, and Risk Oracle operations. These oracles allowed the protocol to self-heal during volatile market conditions. The team streamed hundreds of parameter updates per month.

The infrastructure combined machine learning models with continuous monitoring. This system helped Aave survive multiple market crises while competitors suffered losses. “Just Use Aave” became industry shorthand for the protocol’s reliability.

Goldberg emphasized that reliability was Aave’s core advantage. “Aave’s dominance was never about the flashiest features,” he wrote. “What made Aave dominate over time was its reliability.”

Chaos Labs also contributed to institutional expansion. The team produced due diligence materials and engaged with regulated entities exploring on-chain lending.

DeFi Risk Management Remains Underpriced

Goldberg pointed to a stark comparison. Aave generated $142 million in revenue in 2025, according to his thread. That translated to a risk budget of roughly 2%.

Traditional banks typically allocate 6 to 10% of revenue to compliance and risk. That gap highlights a broader tension in DeFi governance as protocols scale toward institutional adoption.

“Money solves many problems, but not all of them,” Goldberg wrote. “The deeper issue is a fundamental misalignment on how risk should be managed at Aave.”

How Aave Plans to Move Forward

Aave Labs responded quickly. Kulechov stated the team respects the decision and will work with LlamaRisk. “We strongly support maintaining a two-layer risk management model,” he wrote.

Aave Labs also committed to adding an internal technical risk layer. The team confirmed no disruption to smart contracts, asset listings, or deployments during the transition.

LlamaRisk is expected to expand its scope and budget. Chaos Labs will complete an orderly offboarding process with the DAO.

What This Means for Aave Users

Users with open positions on Aave V3 face no immediate changes. Smart contracts and risk parameters remain active. But the transition period may require closer monitoring as V4 launches.

V4’s Hub-and-Spoke model creates new interdependencies across markets. Robust risk oversight becomes even more critical under this architecture. Whether LlamaRisk and Aave Labs can fill the gap remains the key question.

Goldberg ended his thread with a pointed reflection. “We only put our name on work we fully believe in,” he wrote. “That principle is easy to advertise when things are going well. Today it’s costing us $5 million.”

The departure marks the end of one of DeFi’s most significant risk partnerships. It tests whether Aave can maintain its track record entering the most complex phase of its growth.