Risk management team Chaos Labs left Aave due to budget issues—v4 security is in question?

Risk management firm Chaos Labs announced it is terminating its three-year-long partnership with lending agreement giant Aave, becoming the third major contributor to depart after BGD Labs and ACI, and the timing comes just one week after Aave V4 went live, raising outside concerns about the operational safety of the agreement.

Chaos Labs leaves Aave—three reasons behind the split revealed

On Monday, Chaos Labs CEO Omer Goldberg posted on X, announcing the termination of its cooperation contract with Aave. Since November 2022, Chaos Labs has been performing risk pricing for every loan on the Aave platform—managing risk parameters spanning all V2 and V3 markets. During this period, Aave’s total value locked (TVL) grew from $5.2 billion to over $26 billion, the cumulative deposit volume surpassed $2.5 trillion, and there has never been a record of severe bad debts.

Goldberg cited three reasons for the departure: long-term losses, core partners leaving in succession, and an irreconcilable fundamental disagreement with Aave Labs regarding risk management priorities. Most critical, he said, is that the two sides’ views on Aave V4 risk strategy are fundamentally misaligned.

He emphasized that even if budget issues can be resolved, the disagreement on risk priorities between the two sides cannot be bridged with pay raises.

V4 upgrade is a major engineering undertaking, and safety tools must be built from scratch

Exactly one week after Aave V4 went live, the new centralized, radiating liquidity architecture was seen as a major change to the protocol. However, Goldberg pointed out that V4 has a completely new smart contract architecture, system design, and liquidation logic, with no commonality with V3 at all. This means the risk tools and simulation systems Chaos Labs built for V3 over the past three years need to be rebuilt from zero:

More challenging still is that V3 and V4 are expected to run side by side for months, even years, and our workload after the upgrade will not decrease—it will increase.

Chaos Labs estimates that the minimum budget required to maintain two systems concurrently is $8 million, about 5.6% of Aave’s annual revenue of $142 million. Meanwhile, traditional banks typically spend 6% to 10% of revenue on risk compliance. Aave Labs, for its part, only accepts $5 million in spending.

Aave fires back: Chaos wants exclusive ownership of the risk management team role

In response, Aave Labs CEO Stani Kulechov said Chaos Labs has recently been considering reducing its risk advisory business, and that it is not being forced out. He also accused Chaos of demanding that LlamaRisk be kicked out so that Chaos would become Aave’s sole risk management provider, and of wanting to replace the existing partner Chainlink with a price oracle developed in-house, breaking the bilateral risk control model that Aave has long insisted on.

Kulechov stressed that Chaos’s departure has not affected the protocol’s operations or the upgrade integration for Aave. Regarding the vacancy left after Chaos’s exit, Aave said it will work closely with LlamaRisk to ensure a smooth handover of the risk management framework.

The Aave DAO faces an exodus of talent crisis; V4 security becomes a concern

Chaos Labs’s exit is the latest and heaviest warning sign in Aave’s recent governance turmoil. Over the past few months, the core engineering team BGD Labs announced it was ending the partnership with it, while governance and business development representative ACI criticized Aave Labs for having excessive control over the token, and announced it would stop renewing the contract.

(Latest controversy in the Aave community: free asset exchanges turn into paid ones, and the DAO demands to take back control of revenue ownership)

DeFi observer Ignas said plainly that all the core teams that originally supported V3 operations have already left, and the large operational responsibilities will all fall on Aave Labs:

What’s more, Aave V4 is a brand-new protocol. In the words of the crypto community, nobody knows what surprises V4 might bring before real money is put in.

Even though Aave is currently one of the biggest and most profitable lending protocols on-chain, the fact that it has consecutively lost its most crucial technical talent is casting a huge question mark over the stability of its entry into the V4 new era.

This article Risk management firm Chaos Labs leaves Aave due to budget issues, and V4 security is in doubt? first appeared on Chain News ABMedia.