Chaos Labs has officially parted ways with the Aave ecosystem, concluding a three-year tenure as the main risk service provider for the crypto lending protocol. The decision comes against a backdrop of budget disputes and philosophical disagreements over risk management practices.
Omer Goldberg, founder of Chaos Labs, emphasized that the decision was not made hastily. In a post on X, he stated, “We worked in good faith with DAO contributors. Aave Labs was professional and supported increasing our budget to $5 million to retain us. However, we are leaving because the engagement no longer reflects how we believe risk should be managed.”
Aave Labs' CEO, Stani Kulechov, confirmed that the departure was not contentious. However, he highlighted that Chaos had proposed to become the sole risk provider, a move that would have effectively sidelined other partners, including LlamaRisk. Aave was not prepared to accept this compromise.
During its time with Aave, Chaos Labs played a crucial role in the back-end infrastructure, particularly in pricing loans and managing risks in the Aave V2 and V3 markets. Since November 2022, Aave's total value locked has surged fivefold to reach an impressive $26 billion, underscoring the importance of Chaos's contributions.
The issue of risk management has gained significant attention within the Aave community, particularly following an incident on March 12, where a user incurred a loss of $50 million while interacting with Aave’s interface. In response to this, Aave announced plans to introduce an “Aave Shield” protection feature aimed at deterring users from engaging in high-risk trades.
Goldberg noted that the divergence in risk management perspectives grew increasingly pronounced, especially with some Aave contributors having left, thereby increasing the workload for those remaining. He expressed concerns that the expanded capabilities of Aave V4 would introduce additional operational and legal risks that would ultimately fall upon Chaos Labs.
“While Aave Labs is optimistic about a swift migration to V4, history suggests these transitions take months and even years,” Goldberg remarked. “Until V4 fully integrates V3's markets and liquidity, both systems need to be operated and managed simultaneously. The workload during the transition doesn't halve; it doubles.”
Goldberg raised concerns regarding the lack of a regulatory framework and safe harbor for risk managers, stating, “If things work, the work is invisible. If things break, the blame is not.” He concluded by emphasizing the significance of their decision to walk away from a $5 million engagement.
Chaos Labs' Request for Sole Control
Kulechov provided further insight, explaining that Chaos Labs sought to be the exclusive risk manager and insisted on using its price oracles instead of those provided by Chainlink. Adopting this request would have necessitated the exclusion of LlamaRisk, thus undermining Aave’s two-layer economic risk model.
He added that Aave was reluctant to integrate Chaos-built price oracles, referencing Aave’s established relationship with Chainlink, which has fostered user confidence at scale. Kulechov also mentioned that Chaos Labs was considering winding down its risk consultancy services even before the decision to part ways.
Despite Chaos's departure, Kulechov assured that Aave’s protocol, smart contracts, token listings, and network integrations remain unaffected. Going forward, Aave plans to collaborate closely with LlamaRisk to ensure a seamless transition and uphold its two-layer economic risk model.
The split comes amidst broader discussions within Aave about funding levels and revenue control between Aave Labs and its decentralized autonomous organization (DAO). Notably, Aave recently crossed the $1 trillion mark in cumulative lending volume in late February, marking a significant milestone in the DeFi industry.
Source: Cointelegraph News