TLDR
- Aave holds $24.51 billion in TVL and $17.53 billion in borrowed funds.
- BGD Labs, ACI, and Chaos Labs announced exits within less than two months.
- A March CAPO error caused about $10.94 million in wstETH liquidations.
- Aave Labs plans to absorb governance, tooling, and technical review work.
- Morpho trails Aave with $4.29 billion in borrowed funds, but the gap may narrow.
Aave leads DeFi lending by a wide margin, but its operating model now faces a direct test. Three major contributor groups have announced exits during a period of product expansion and governance change.
DefiLlama data shows Aave holds $24.51 billion in total value locked and $17.53 billion in borrowed funds. That scale keeps Aave ahead of Morpho and Spark, yet the recent departures have shifted focus from growth to execution.
Contributor exits reshape Aave’s operating model
BGD Labs said on Feb. 20 that it would stop contributing because “the environment no longer aligns.” Its off-boarding process began by Apr. 1. Then ACI said on Mar. 3 that it would not renew and would wind down over four months.
Chaos Labs added a third exit on Apr. 6. It said it was ending its engagement on its own terms after managing risk on Aave V2 and V3 since November 2022. These exits arrived in sequence and affected code, governance, and risk functions.
Aave’s governance structure had assigned different duties to each team. ACI handled growth and governance coordination. Chaos Labs managed risk, while BGD handled technical and security verification.
That structure mattered because major changes moved through all three groups. ACI had said that every major initiative required the full service-provider chain. With those teams leaving, Aave now faces a live test of whether it can maintain the same level of coordination.
CAPO error adds pressure during V3 and V4 overlap
The governance strain became more visible after a configuration error in March. On Mar. 10, a CAPO oracle misconfiguration pushed the effective wstETH exchange rate about 2.85% below market. That deviation triggered about $10.94 million in liquidations across 34 accounts.
Aave’s post-mortem said the event created no bad debt. Still, it confirmed a reimbursement proposal of 512.19 ETH. That would leave a DAO cost of 358.56 ETH.
The event gave fresh weight to concerns around execution. Chaos Labs said the V3 to V4 overlap creates a heavier operational burden. It argued that managing a live legacy system and a new architecture requires more tooling and staffing.
Chaos Labs estimated that Aave would need a minimum risk budget of $8 million. That figure stands above its historical $3 million engagement. The team also pointed to Aave’s roughly $142 million revenue base in 2025.
Aave Labs moves to absorb core functions
Aave Labs has moved to fill the gaps left by the departing teams. Its “Aave Will Win” ARFC proposes that Labs take over governance tooling, DAO GitHub maintenance, Guardian coordination, CAPO pricing, and bridge adapter maintenance.
The proposal also gives Labs a larger role in technical reviews, proposal workflows, and incentive systems. Aave says the goal is to reduce dependence on any single outside provider. BGD has also proposed a two-month advisory retainer through May 31.
Aave enters this transition with scale and a strong market position. Token Terminal data for March put active DeFi loans at $27.68 billion, with Aave holding 59.79%. The protocol also processed about $429 million in liquidations in February without incident.
Still, rivals may benefit if Aave struggles during the handover. Morpho has $4.29 billion in borrowed funds, while Spark holds about $967.52 million. If Aave avoids another control failure, its lead may remain intact, but the next phase will test that claim.
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