Cracks Show at Aave as Chaos Labs Becomes Latest Exit

Aave now relies on LlamaRisk during V4 rollout while facing governance and operational challenges.

Chaos Labs, the long-time risk management partner for Aave, is stepping away from the protocol -- an unexpected move that's turning heads across DeFi.

The decision, shared in an Apr. 6 governance forum post, is the latest high-profile exit from Aave DAO and raises fresh questions about alignment, operations and what comes next as Aave prepares for its V4 upgrade.

Chaos Labs' Tenure and Sudden Exit

Since November 2022, Chaos Labs has played a central role in Aave's risk operations.

The firm priced every loan, managed parameters across V2 and V3 markets across multiple networks, and supported the protocol's growth from $5.2 billion to over $26 billion in total value locked (TVL).

During that time, Aave processed more than $2.5 trillion in deposits and $2 billion in liquidations -- with no material bad debt.

Chaos Labs also built custom Risk Oracles that enabled real-time parameter updates, strengthening Aave's reputation for reliability during volatile market conditions.

The decision to exit was proactive rather than sudden.

In its forum announcement, Chaos Labs cited a "fundamental misalignment" in risk management philosophy. It pointed to three main factors behind its decision.

First, the exit of other core contributors increased both workload and operational risk.

Second, Aave's V4 architecture, which features a hub-and-spoke model, isolated markets, and new liquidation logic, introduced significant complexity that Chaos Labs neither designed nor fully supported.

Third, the engagement had operated at a loss for three years, even with proposed budget increases. The firm said continuing to subsidize Aave's risk operations was not viable.

Chaos Labs also raised broader concerns around institutional adoption.

Aave's conservative risk framework has historically attracted regulated participants, but shifting priorities could weaken that positioning over time.

Despite negotiations, including an offer from Aave Labs to double its budget to $5 million.

However, the firm concluded that the terms no longer met the standards required to support Aave's scale.

While expressing pride in its work, Chaos Labs said continuing under current conditions -- either under-resourced or at a loss -- was not sustainable.

A Pattern of Contributor Exits

Chaos Labs is not the first team to step away from Aave.

In February 2026, BGD Labs, the group behind much of Aave's core engineering, said it would exit in April.

A month later, the Aave Chan Initiative (ACI), a key contributor to governance and business development, announced plans to wind down by July.

Together, these teams handled a significant share of development, governance and treasury operations.

Their departures have fueled concerns about a potential contributor vacuum during Aave's V4 transition.

The exits come amid a challenging period for the protocol.

In March, a misconfiguration in the Collateral Asset Price Oracle (CAPO) caused a 2.85% undervaluation of wstETH collateral, triggering around $27 million in unintended liquidations across 34 accounts.

While affected users were compensated, the incident raised concerns about oracle reliability.

At the same time, governance tensions have been building.

Disputes over transparency, self-voting on major budget proposals and resource allocation have added friction within the DAO.

The timing adds pressure. Aave V4, launched on Ethereum in late March, introduced a new architecture designed to improve capital efficiency and risk isolation.

But the transition requires careful oversight as V3 and V4 operate in parallel -- just as key contributors are leaving.

Market sentiment has reflected the uncertainty. The AAVE token has seen increased volatility, alongside broader DeFi pressures and a separate $50 million-plus slippage event that, while functioning as designed, further tested confidence.

What This Means for Aave and DeFi

Aave founder Stani Kulechov responded swiftly on X, thanking Chaos Labs for their contributions.

Kulechov confirmed that there would be no disruption to smart contracts, asset listings, or deployments.

LlamaRisk, the other risk manager, will assume expanded responsibilities, supported by Aave Labs' engineering resources.

The protocol will maintain its two-layer risk model to avoid vendor lock-in.

The wave of exits underscores the challenges DAOs face in scaling while retaining talent and alignment.

Aave remains a DeFi cornerstone with strong fundamentals, but the coming months, marked by V4 migration and governance transitions, will test its resilience.

For users seeking stable lending options, the focus remains on protocol security and community-driven improvements.

As one of the most battle-tested platforms, Aave's ability to adapt could reinforce its "Just Use Aave" ethos -- or signal deeper structural shifts in DeFi governance.

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