AAVE, the native token of the decentralized lending protocol of the same name, has fallen to its lowest level in nearly two years. The Ethereum-based token dropped to $86.15 on Tuesday before recovering slightly to around $89.12. That still represents a decline of roughly 17% over the past month and a fall of more than 86% from its 2021 all-time high of $661.69.
A significant share of those recent losses followed an announcement by Chaos Labs, a blockchain risk management firm, that it is stepping down as one of two risk managers for the Aave DAO. The token shed more than 6% in the 24 hours after the news broke. Chaos Labs founder Omer Goldberg stated on X that the firm had managed risk across all Aave V2 and V3 markets since November 2022 without incurring any material bad debt.
Goldberg said the decision to exit was not made hastily, citing several contributing factors. These included the departure of other core contributors, an expanded risk scope tied to the recent launch of Aave V4, and operational losses associated with the engagement. He noted that the firm declined an offer to nearly double its annual fee to $5 million, concluding that neither staying at a loss nor continuing with insufficient resources met the standard required by the largest decentralized finance application in the world.
With Chaos Labs stepping away, LlamaRisk becomes the protocol’s sole risk manager in the near term. Aave founder and CEO Stani Kulechov said LlamaRisk already has deep familiarity with the protocol’s architecture and parameters. He added that Aave Labs will contribute engineering and analytical resources to support the transition and ensure uninterrupted risk coverage. Kulechov also expressed support for expanding LlamaRisk’s budget to accommodate the additional workload.
While Kulechov publicly thanked Chaos Labs for its contributions, he also reposted commentary from another user characterizing the situation in sharper terms. That post suggested Chaos Labs had attempted to pressure Aave and described the firm’s conditions for remaining as overbearing demands. The repost was widely interpreted as an implicit endorsement of that view.
The Chaos Labs exit is not an isolated event within the Aave ecosystem. In February, development firm BGD Labs announced its own departure, citing what it described as radically shifting alignment within the DAO’s organizational structure as Aave Labs moved toward a more central role. Shortly afterward, ACI also announced it was leaving, stating there was no place for an independent service provider in an environment where the largest budget recipient holds undisclosed voting power and uses it on its own proposals.
Despite the internal turbulence, Aave remains the largest decentralized finance protocol by total value locked, with more than $24 billion secured on the platform according to DeFiLlama. The protocol recently launched its V4 upgrade, which introduces new borrowing and lending features and a hub-and-spoke model for liquidity management. However, the older V3 protocol continues to see substantially more activity, as V4 only debuted last week.
The platform has also faced other notable incidents recently. One user lost approximately $50 million after manually overriding a warning about an extreme slippage quote while attempting to swap stablecoins for AAVE tokens, ultimately receiving just $36,100 in return. Despite these challenges, Aave reported a near doubling of active users over the past six months, reaching an all-time high of around 155,000 in February.
Originally reported by Decrypt.
