Press the "Saute" button on the Instant Pot and add the olive oil.
Once the oil is hot, add the red onion, garlic, jalapeno, sea salt, black pepper, paprika, and cumin. Cook until the onions are soft, around 3-4 minutes.
Stir in the black beans, diced tomatoes, and the broth.
Add butternut squash on top of the mixture; do not stir.
Close the Instant Pot lid and set valve to sealing. Press the "Manual" button and cook on high pressure for 6 minutes.
Let the pressure release naturally and then release the remaining pressure manually.
Remove and discard the bay leaf.
Serve the butternut squash chili topped with a lime wedge, fresh cilantro, and diced avocado.