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- Cracks at Aave
Hi all, happy Tuesday!
Monday’s session made it harder to argue that crypto had regained the initiative; weekend optimism faded before the market could turn it into a broader trend. The clearest takeaway was not any new leadership group, but how quickly participation thinned out once the first wave of buying passed.
Today we also look at the growing tension around Aave after Chaos Labs’ departure, which follows recent exits from other core contributors and comes just after the passage of the “Aave Will Win” framework. The departure adds to broader questions around contributor alignment, governance, and whether the market still has confidence in Aave Labs’ ability to lead the protocol into its next phase.
Breadth vanished fast: Monday’s close undercut the weekend relief-rally story almost immediately. BTC finished down −0.6% on April 6, while SPY and QQQ both added +0.7% and gold rose +0.8%, which meant crypto lagged every major benchmark on the day. That’s the clean headline, but the more useful signal was how little support remained once the bounce lost momentum.
The board was weak almost everywhere. Only AI (+1.2%), the Bittensor Ecosystem (+0.5%), and a flat Gaming bucket avoided losses, while 22 of 25 tracked sectors finished red. Solana Eco was the worst major sleeve at −2.4%, followed by L2 at −2.0%, Meme at −1.5%, and Perps at −1.4%. Even the middle of the table never found a real bid, with DEXs, RWA, DeFi, and the Ethereum Ecosystem all down around −1%.
That matters because Monday was supposed to be the follow-through session after Sunday’s ceasefire-driven relief move. Instead, the leadership got narrower, not broader. Our April 6 newsletter had already leaned on memes, Solana, and a selective rebound, so the clean update for the Monday session is that the market failed to build on that setup. Solana-linked beta gave back the most ground, while AI and Bittensor were the only sleeves that still attracted buyers.
If Tuesday’s session cannot broaden beyond those narrow pockets, the right read is failed bounce, not fresh rotation. The next thing to watch is whether BTC can at least stop lagging equities. If it cannot, the rest of the crypto board is unlikely to find a durable bid.
— Daniel
Who runs Aave now?
Headwinds continue to build at Aave. Yesterday Chaos Labs announced it would step away from the protocol, marking not just the loss of a service provider, but another crack in the contributor stack that helped Aave scale into the largest lending protocol in DeFi while maintaining zero bad debt and no major security incidents.
Aave’s reputation for reliability was built by a tight group of operators across governance, growth, engineering and risk, yet half of that core group has now departed in just the past two months. Chaos Labs’ message is that this goes beyond budget alone, pointing instead to a growing mismatch between the scale of responsibility placed on key contributors and how that work is being valued.
Across all three departures — BGD, ACI and Chaos Labs — the underlying tension appears consistent: Contributors who helped build Aave into what it is today no longer believe their roles, influence or compensation reflect their importance to the protocol, particularly relative to the scale of funding now flowing to Aave Labs.
The timing is notable. Chaos Labs’ departure comes just two days after the Aave Will Win Framework proposal passed. Under the new framework, Aave Labs transitions to a DAO-funded operating model with a significantly expanded mandate. In exchange for directing 100% of Aave-branded product revenue to the DAO, Aave Labs will receive roughly $50M in funding: a $25M stablecoin budget upfront, 75,000 AAVE vesting over four years, and up to $17.5M in milestone-based growth grants tied to products like Aave App, Aave Pro, Aave Card and Aave Kit.
Even as Aave Labs becomes more formally DAO-funded under this framework, it would still remain structurally more powerful than other service providers given its expanded mandate and governance influence. Stani Kulechov pushed back on this framing, noting that negotiations with Chaos Labs broke down after Aave Labs declined several requests, including sole risk-provider status, exclusivity over certain vault integrations, and an expanded oracle role that would have displaced Chainlink in new deployments.
On compensation, Stani noted that Aave Labs supported increasing Chaos’ budget from $3M to $5M annually to reflect V4’s expanded scope, with room for further increases subject to DAO approval. Looking ahead, Aave Labs plans to work with LlamaRisk to ensure continuity, while leaving the door open for additional risk providers. The V3-to-V4 transition will proceed gradually, with both versions running in parallel and no forced migration timeline.
More broadly, this tension comes against a backdrop of declining market confidence. Since it emerged in early December that swap fees from Aave Labs’ CoW Swap integration were being routed to Aave Labs rather than the DAO treasury, AAVE has fallen more than 50%, erasing roughly $1.5B in market cap, while MORPHO, its main competitor, has increased by nearly 30% over the same period.
The relative valuation gap reinforces that divergence: MORPHO now trades at roughly 120x fully diluted P/S, versus about 20x for AAVE. Put differently, the market is pricing in far more future growth for Morpho, a sign of lower conviction in Aave Labs’ ability to lead the protocol into its next phase.
— Carlos
Shaundadevens from Blockworks Research published a thought-leadership piece on Hyperliquid’s HIP-3 markets. Hyperliquid’s weekend markets were initially framed as an architectural proof of concept, but the Strait of Hormuz disruption forced a more practical question: Can a 24/7 venue do meaningful price discovery when the primary benchmark is offline?
During the closure window, with CME crude futures shut and oil markets repricing rapidly, TradeXYZ’s crude market became the only continuously available venue for risk transfer. Prices moved directionally with incoming information; participation scaled materially after the initial shock; and by the reopen, a significant share of the adjustment had already been incorporated. Across a broader cross-asset sample, this pattern persisted, with weekend prices systematically converging toward the eventual reopen rather than reverting to Friday’s close. The evidence suggests that weekends are increasingly informative, particularly in regimes where traditional benchmarks are most stale.
Ethena revealed new initiatives to diversify USDe’s backing away from heavy reliance on crypto-perp funding by adding four conservative pillars: overcollateralized institutional stablecoin lending, expanded RWAs beyond T-bills, equity and commodity basis trades, and secured “prime” lending that avoids exchange risk.
The post argues these are natural extensions of Ethena’s existing delta-neutral playbook, governed by Risk Committee caps and defined counterparty and collateral standards, with USDe’s core architecture and redemption mechanics unchanged. On the basis-trade expansion specifically, Ethena points to the growth of onchain equity/commodity perps — driven by Hyperliquid’s HIP-3 framework, which has scaled to ~$2B open interest with most top markets now non-crypto — and cites elevated commodity funding (e.g., Binance gold perps averaging ~24.6% funding in March) as a new source of basis yield.
Omer Goldberg from Chaos Labs published an article arguing that crypto’s recurring exploit cycle is less a pure technical failure and more a market-structure problem: The industry lacks a non-discretionary “standards layer” (procurement requirements, insurer pressure, disclosure norms, enforceable accountability) that forces serious security investment the way TradFi/Web2 does.
In crypto, security is optional and cyclical — teams underinvest until they blow up — because markets reward growth while “no headline” security doesn’t get paid. He concludes that voluntary security has hit a ceiling and that as TradFi and onchain finance converge, external standards (and possibly AI-assisted risk tooling) will be needed to make security a requirement rather than a nice-to-have.
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