Preheat your oven to 350°F (175°C). Grease three 9-inch round cake pans and optionally line with parchment paper.

In a large mixing bowl, whisk together the granulated sugar, all-purpose flour, unsweetened cocoa powder, baking powder, baking soda, and salt until combined.

Add the eggs, milk, water, vegetable oil, and vanilla extract to the dry ingredients. Mix until just combined.

Pour the batter evenly among the three prepared cake pans. Bake for 20 to 25 minutes. Let cool in pans for 10 minutes before transferring to a wire rack.

In a mixing bowl, combine the peanut butter and softened butter. Beat until creamy, then gradually add the powdered sugar. Mix in milk until desired consistency is reached.

Assemble the cake by placing one layer on a serving plate, spreading frosting, adding mini chocolate chips, and repeating with the second layer. Top with the final layer and frost the top and sides.