Chaos Labs has ended its partnership with the Aave crypto lending protocol after three years as its primary risk service provider. Founder Omer Goldberg announced the departure in a post on Monday, stating the decision was not made hastily. He said the company had worked in good faith with contributors but concluded that the engagement no longer reflected how risk should be managed. Aave had offered to raise Chaos Labs’ budget to $5 million in an effort to retain the firm, but the offer was ultimately declined.
Goldberg outlined several reasons for the split, pointing to an increasing misalignment over risk philosophy between the two parties. He noted that the departure of some Aave contributors had added to Chaos Labs’ workload, while the expanded functionality of Aave V4 introduced additional operational and legal responsibilities. He also raised concerns about the transition period between V3 and V4, arguing that both systems would need to be managed simultaneously rather than sequentially. “The workload during the transition doesn’t halve. It doubles,” Goldberg said.
Goldberg also highlighted the legal ambiguity surrounding risk management in decentralized finance. He noted there is no regulatory framework, safe harbor, or settled law defining what a risk manager owes when a protocol fails. In his view, successful risk management goes unnoticed, while failures attract blame. These concerns, he said, ultimately factored into the decision to walk away from the $5 million engagement.
Aave Labs CEO Stani Kulechov offered a different account of the circumstances, stating that Chaos Labs had sought to become the sole risk provider for the protocol. According to Kulechov, Chaos also proposed replacing Chainlink‘s price oracles with its own. Accepting those terms would have required Aave to remove its other risk partner, LlamaRisk, and abandon its two-layer economic risk model, which Aave was unwilling to do. Kulechov added that Aave’s users are more comfortable with Chainlink’s services at scale given the platform’s track record with the provider.
Kulechov also suggested that Chaos Labs had already been considering winding down its risk consultancy services before the departure was announced. He confirmed that Aave had offered to double the firm’s compensation to $5 million in an attempt to retain it. Despite the split, Kulechov stated that Chaos Labs’ exit has not disrupted the Aave protocol, its smart contracts, token listings, or network integrations. Aave said it will work closely with LlamaRisk to ensure a smooth transition and preserve its existing risk framework.
The departure comes at a sensitive time for the Aave community, which has been actively discussing risk management following a significant loss suffered by a user in mid-March. On March 12, a user lost $50 million in a trade conducted through Aave’s interface. In response, Aave announced plans to introduce an “Aave Shield” protection feature aimed at discouraging users from engaging in high-risk trades.
The exit also coincides with a broader internal dispute within the Aave ecosystem over how much funding and revenue control Aave Labs should hold relative to Aave’s decentralized autonomous organization. Despite these tensions, Aave reached a milestone in late February, crossing $1 trillion in cumulative lending volume — a first in the DeFi industry. Chaos Labs had been involved in the protocol since November 2022, during which Aave’s total value locked grew fivefold to $26 billion.
Originally reported by CoinTelegraph.
