Chaos Labs Ends Aave Partnership Over Risk Disputes

Chaos Labs, a prominent risk management firm in decentralized finance, announced on Monday that it is ending its nearly three-year partnership with Aave, the largest DeFi lending protocol, due to disagreements over risk priorities and insufficient resources for the platform's upcoming V4 upgrade.

The firm, which has handled risk oversight for Aave since November 2022, cited a fundamental misalignment in how risk should be managed at the scale of a protocol that now oversees more than 26 billion in total value locked. During its tenure, Chaos Labs priced every loan on Aave and managed parameters across all V2 and V3 markets, achieving zero material bad debt while the protocol processed over 2.5 trillion in deposits and more than 2 billion in liquidations. Aave's growth from about 5 billion in TVL at the start of the engagement to its current scale underscores the firm's contributions to the platform's stability.

At the core of the split is Aave's planned V4 upgrade, described by Chaos Labs as a complete architectural overhaul introducing new credit frameworks, interconnected markets, and revised liquidation protocols. The firm argued that this shift requires rebuilding risk...