Preheat your oven to 350°F (175°C) and line two large baking sheets with parchment paper.

In a large bowl, mix together the nutritional yeast, soy sauce, and 2 Tbsp (30 mL) oil. Add the tofu to the bowl. You can either crumble it with your fingers or use a potato masher to smash the tofu into small crumbles. stir the tofu to evenly coat in the seasonings.

Divide the tofu crumbles evenly among the two prepared baking sheets. Bake for 35 minutes, stopping to stir it halfway through. After 35 minutes of cooking, sprinkle the walnuts evenly over one of the baking sheets and continue baking both sheets for another 10 minutes, until the tofu is dried and golden brown. (Adding the walnuts at the end will toast them up a bit and make them more flavorful.)

In the meantime, heat the remaining 1 Tbsp (15 mL) olive oil in a large soup pot over medium-high heat. Add the onions and garlic and sauté for about 5 minutes, until the onions begin to brown. Stir in the diced tomatoes, tomato paste, 2½ cups (625 mL) water, chili powder, cumin, paprika, and cayenne to taste. Bring to a simmer and cook for about 15 minutes, until the tomatoes have darkened in color and the chili has thickened slightly.

Stir in the baked tofu and walnuts, bring back to a simmer, and cook for another 5 minutes to let the tofu absorb the liquids and soften a bit. if your chili is too thick, stir in another ¼–½ cup (60–125 mL) water as needed until you reach your desired consistency. Divide among bowls and serve hot.