Chaos Labs ended its three-year Aave partnership, saying V4’s expanded scope demands at least $8 million in annual risk funding the protocol hasn’t committed.

Chaos Labs terminated its risk management engagement with Aave on Sunday, walking away from a $5 million renewal proposal and closing a three-year partnership that helped the lending protocol grow from $5.2 billion to more than $26 billion in total value locked.

The firm said it had run the Aave mandate at a financial loss since joining in November 2022. CEO Omer Goldberg said the upcoming Aave V4 upgrade, which introduces new credit frameworks and revised liquidation protocols, would require “entirely new simulation models, analytical tools, and operational procedures,” effectively doubling the scope of risk work. Chaos estimated it would need at least $8 million per year to cover both the existing V3 deployment and the new architecture.

This story is an excerpt from the Unchained Daily newsletter.

Aave generated $142 million in revenue in 2025, putting the proposed $5 million budget at roughly 2% of protocol income. Chaos argued that figure falls well below the 6% to 10% that traditional banks allocate to compliance and risk infrastructure. Goldberg added that “money solves many problems, but not all of them,” pointing to deeper architectural disagreements over how risk should be prioritized.

Aave founder Stani Kulechov pushed back, noting the protocol had declined to grant Chaos sole-provider status or exclusive vault arrangements, favoring “resilience” through multiple risk contributors. Llama Risk committed to filling operational gaps immediately.

The departure is the third high-profile exit from Aave’s contributor ranks in recent months, following ACI (Aave Chan Initiative) and BGD Labs. With V4 on the horizon and no established replacement, the protocol faces a critical transition in its risk oversight at a moment when its complexity is about to increase significantly.