AAVE Maintains Dual-Layer Risk Model as Chaos Labs Exits

Aave founder Stani Kulechov responded to Chaos Labs’ exit by thanking them for their contributions and stating that the protocol’s smart contracts, asset listings, and network deployments remain unaffected according to the announcement. The transition to Aave V4 is ongoing, with LlamaRisk handling expanded responsibilities in risk management.

Chaos Labs cited budget disputes and philosophical disagreements on how risk should be managed as reasons for their departure according to their statement. The firm had sought exclusive risk provider status and wished to replace Chainlink’s oracle system, both of which were denied by Aave as reported.

Aave will continue to operate under its dual-layer economic risk model while introducing a technical risk layer managed by Aave Labs as announced. Aave Labs will work closely with LlamaRisk to ensure uninterrupted risk coverage during the transition and to support LlamaRisk in expanding its budget and team size.

Why Did Chaos Labs Leave Aave?

Chaos Labs, a key risk management partner for Aave, has exited the protocol due to philosophical misalignment and operational challenges related to Aave V4 according to analysis. The firm had been managing risk operations for Aave since November 2022 and contributed to TVL growth from $5.2 billion to over $26 billion as reported.

Chaos Labs indicated that their engagement operated at a loss for three years and that the workload during the V4 migration would double rather than halve according to their statement. They also expressed growing concerns over legal liability in the absence of clear regulatory guidelines as stated.

What Changes Will Aave Introduce to Maintain Risk Coverage?

Aave will maintain its dual-layer economic risk model and will introduce a technical risk layer managed by Aave Labs as confirmed. This technical risk layer aims to support LlamaRisk in expanding its responsibilities and budget according to the announcement.

Aave Labs will collaborate closely with LlamaRisk during the transition and support its expansion in both budget and team size as stated. Chaos Labs and Aave will maintain close cooperation during the withdrawal process according to the announcement.

How Does This Affect Aave’s Governance and Stability?

The exit of Chaos Labs raises questions about institutional adoption and alignment within Aave DAO according to analysis. This follows the departure of other core contributors like BGD Labs and ACI, raising concerns about governance and operational stability during the transition as reported.

Aave founder Stani Kulechov emphasized that the protocol’s risk appetite remains unchanged and that the dual-layer model will continue to be in place to avoid vendor lock-in according to his statement.

Aave’s approach is expected to ensure continuity in risk coverage while adapting to the challenges introduced by the V4 upgrade as stated.