Chaos Labs exits Aave as V4 rollout raises risk and governance concerns

Chaos Labs, Aave’s main risk manager, is stepping down after more than three years, citing misalignment over how risk should be handled in the protocol’s new V4 system. The company says the V3-to-V4 migration will double its workload and significantly increase operational and legal complexity, while governance tensions and the departure of other core contributors leave Aave facing potential risk-management challenges.

Chaos Labs exits over V4 risk-management disagreements

In a post shared on Aave’s governance forum and social channels, Chaos Labs said it has been running its Aave engagement at a loss. The team argues that the V4 system is too complex and does not meet its safety standards, and that stepping down is the best way to protect its work and reputation. Chaos Labs also emphasized that the decision was planned rather than reactive.

Chaos Labs has managed risk for Aave since 2022. It previously helped build risk systems, including Risk Oracles, which the company said improved reliability relative to other DeFi projects.

Migration pressure: V3 must stay live while V4 is built

A key driver of the exit is the planned migration from V3 to V4. Chaos Labs said the transition would double its workload and could take months or even years to complete. It also noted that V3 must remain live until V4 is finished, meaning the company would have to manage both systems under a limited budget.

Aave reportedly offered to raise Chaos Labs’ budget to $5 million. Chaos Labs estimated it would need $8 million to manage the same risk across V3, V4, and institutional expansion.

Financial and legal constraints

Chaos Labs said funding and workload would not align with the real operational requirements. It cited that the protocol generated $142 million in revenue in 2025, while the company allocates only 2% of revenue to risk and compliance—below the 6% to 10% range typically spent by banks on risk and compliance.

The company also pointed to legal exposure: in its view, DeFi risk managers can be held responsible for mistakes without clear legal protections. Under these conditions, it argued that the V3-to-V4 transition would increase risk without guaranteeing the same safety level under Aave’s current plan.

Governance tensions and contributor departures raise the stakes

Chaos Labs’ exit follows earlier departures of other key contributors, including BGD Labs and Aave-Chan Initiative. Chaos Labs said these teams provided years of experience and knowledge that helped keep loans safe and the protocol stable.

The company also referenced disagreements among contributors, delegates, and Aave Labs over fee distribution, tokenholder rights, and major development funding proposals. One example cited was the “Aave Will Win” proposal, which required $51 million for development and suggested moving Aave Labs into a DAO-controlled subsidiary; it passed narrowly, reflecting deep divisions among DAO members.

A budget dispute also featured in the account: Chaos Labs rejected the $5 million offer, saying it was insufficient to sustain operations while maintaining profitability.

Aave leadership signals continued V4 progress

Aave founder Stani Kulechov posted on social media thanking Chaos Labs for its contributions while disagreeing with some of the claims. He said the protocol will continue the V4 rollout in a controlled, security-first manner, even as the exit of major contributors creates an obvious challenge for the public.

With Chaos Labs stepping down, Aave’s leadership, DAO delegates, and remaining contributors are expected to plan the next steps carefully, as governance disputes and personnel changes could affect protocol stability and user trust during the V4 transition.

Context: Aave growth during Chaos Labs’ tenure

Chaos Labs’ role in risk management coincided with major growth in Aave’s scale. The article states Aave’s total value locked (TVL) rose from $5.2 billion to over $26 billion, while users borrowed over $2.5 trillion and liquidations exceeded $2 billion without causing major losses.