[ARFC] - Chaos Labs Scope and Compensation Amendment

Governance
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Summary

Chaos Labs proposes an amendment to our current scope of work and compensation structure accordingly. Chaos Labs is currently contracted to cover V3. We propose to formally expand our scope of work to cover all of Aave, including V2 and GHO. Chaos Labs is requesting a $400,000 increase, bringing our total annual compensation to $1.5M.

We view this expansion of work as an all-encompassing commitment and, with this, take responsibility for all Aave lending markets and financial products for the remainder of the term. Specifically, this means that there will be no further compensation increase requests, regardless of additional deployments, features, or initiatives prioritized during this time.

Background

Chaos’ initial engagement with Aave, starting in November 2022, focused exclusively on risk management and parameter recommendations across V3 markets (Discussion link). In early January, prior to the launch of V3 Ethereum, the community approved a 5-month extension of our engagement to cover V2 markets, which expired in early June 2023. Despite coverage and compensation expiring, Chaos Labs has continued to demonstrate unwavering dedication to managing V2 risk and promoting the transition to V3 while allocating significant resources.

Furthermore, we have committed extensive resources to integrate V2 markets into our product suite and put forward comprehensive analyses and proposals. Given that the transition to V3 is a protracted and ongoing commitment, it remains crucial to maintain proactive risk management for V2 in the transition phase. This necessity was underscored in the recent industry-wide deliberation surrounding the CRV market. Chaos formulated a mitigation strategy now being implemented via a series of governance proposals.

As risk contributors to the protocol, we at Chaos Labs embrace an all-encompassing perspective. We view our domain of accountability and responsibility as the entire spectrum of Aave, including V2, V3 (all deployments), and the most recent launch of GHO, as they pertain to risk, data science, parameter recommendations, analytics, and more. With this in mind, the amendment to our compensation will more accurately reflect the dedicated resources we allocate, the breadth and depth of our commitment, and the tangible value we provide to Aave.

Scope:

As outlined in the background section, the scope of our work is expansive, encompassing every element related to market risk throughout the Aave protocol. Below, we highlight the core components of our engagement:

V2+V3

  • Risk Parameter Optimization - Deploying our agent-based simulation platform, proprietary methodologies, and a distinguished team of data scientists and researchers, we provide the community with comprehensive analyses and recommendations for risk parameter settings and strategies. Our paramount goal is to optimize protocol revenue while protecting user funds and mitigating potential risk vectors.
  • Risk Monitoring and Alerting - We offer real-time monitoring and alerting services through the Chaos Labs Risk Monitoring Platform. These services allow users to assess ecosystem risk and protocol health at granular levels using dashboards and data visualizations.
  • Protocol Growth - We provide integral support to the protocol growth initiatives through detailed market risk assessments and parameter recommendations for new asset listings and deployments.
  • Incident Response and Ongoing Market Impact Analysis - We maintain an active role in incident response, ready to react promptly and effectively in the event of any market anomalies or security incidents. Furthermore, we continually analyze the repercussions of market events and potential risk scenarios, empowering us to refine our strategies and bolster the resilience of the Aave protocol.
  • And more

GHO

  • Parameter Optimization - Chaos Labs will conduct data-driven research and simulations to recommend optimizations for GHO-specific parameters, including Borrow rate, stkAAVE discount rate, bucket capacities, and DEX liquidity goals. Additionally, Chaos Labs will extend its current V3 Ethereum Asset Listing framework to include rigorous analysis of how new asset types can affect GHO composition and stability.
  • Ongoing Risk Management, Monitoring, and Analytics - Chaos Labs will continue iterations on our unified risk monitoring and alerting platform for GHO, across primary markets (Aave), including all facilitators and secondary markets (centralized and decentralized exchanges). Our risk management services include economic reviews of GHO and ecosystem adoption across primary and secondary markets, peg stability, GHO backing composition, and more.
  • Facilitators Risk Framework, Recommendations, and Monitoring - Chaos Labs will create a risk framework to consider potential facilitators and their corresponding GHO credit lines and provide ongoing risk analysis for potential and existing facilitators based on this framework.
  • And more

Highlighted previous work and resources

Terms

We request an additional $400K for the remainder of our current engagement, bringing the total annual compensation to $1.5M.

Specification:

If this proposal is approved, a stream of the allocated budget will be activated, with a Chaos Labs-controlled account (0xbC540e0729B732fb14afA240aA5A047aE9ba7dF0) as the recipient.

In terms of technical implementation, the AIP will call the createStream() method of the IAaveEcosystemReserveController interface to create a stream of 400,000 aUSDT. This stream will be scheduled to conclude on November 7th, 2023, coinciding with the termination of our original engagement.

Disclaimer:

Chaos Labs provides ongoing risk management services to several other borrowing/lending protocols, such as Benqi, Venus, Tapioca, and Tashi. These commitments do not interfere with our responsibilities concerning our association with Aave. We conscientiously provide explicit disclaimers and relevant context in any proposals that may influence clientele across the DeFi ecosystem.

This proposal was not commissioned or paid for by any third party.

Next steps

  1. Following community feedback, we are targeting a Snapshot vote on August 14th.
  2. If consensus is reached, submit an Aave Improvement Proposal (AIP).

Copyright:

Copyright and related rights waived via CC0.

8 Likes
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Aho.
We are struggling to understand the differences between @ChaosLabs and @Gauntlet ; how similar both service providers are? What are the differences in terms of scope? Is someone thinking how to maximize DAO’s revenues? (not just risk management). If both scopes are similar, we don’t think is sustainable to have two SPs doing a similar job.

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Hello,

As the ACI, working with Chaos Labs has been an absolute pleasure, we recognize the extreme amount of work and pressure of the role (especially in the recent weeks) and we witnessed from first rows, chaos being responsive, proactive and in the frontlines.

Fair work deserves fair pay and compensation to adjusted level becomes in line with the second service provider of the Aave DAO, The total budget of boths if this proposal pass will sits around 3M$/annum that is the limit of our comfort zone for this budget department.

To answer here, we think it’s an absolute necessity to have redundancy in risk service providers teams, this role is critical and having two competing teams is of immense added value for the DAO and the Aave protocol users safety. we want as a DAO to have maximum checks and balances regarding risk parameters and while coordination is welcome, healthy competition keeps users safe.

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Aligned with @MarcZeller here. Diversification of risk providers is crucial.

We also agree that if this proposal goes through, ~$3M/year is getting within treasury limits.

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While we generally agree with you, we still believe that having two SPs doing the same thing is money poorly spent. That budget could go to automate things and have less human intervention on the risk management side. We have enough tools to make the automation process smooth for the protocol.

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As this forum is for everybody free to post, feel free to share what you have in mind regarding automation and why and how this could or should reduce the need of having 2 SP for risk management.

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Have you seen how FraxLend works, for example? We can onboard a third party like Mimic, and help us to automate some parameters (it is not necessary to automate everything), but having less human intervention will help the protocol to act quickly when needed. DAOs processes are slow, and when time is sensitive, there is a need for a quicker system.

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I very much agree with the need for redundancy at this role. In a lending business - Risk is the business.

Traditionally there is an internal team solely focused on this and they are usually complimented with an outside firm to ensure coverage. In this structure, two outside service providers is expected / necessary.

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Hi @ChaosLabs :wave:

With members of our team having worked with the Chaos Labs team for a long time. We can testify to their professionalism and quality of work. Chaos Labs is always prompt to respond. The team is a pleasure to work with.

Chaos Lab’s funding request of $1.5M relative to Gauntlet receiving $2M mis represents Chaos Labs value add relative to Gauntlet’s value received. In our opinion, if the overall budget is $3M a year, then Gauntlet’s contract will need to be reduced to $1.5M, or less, when it is up for renewal in December.

We are supportive of increasing Chaos labs remuneration to $1.5M. However, we would like to see the composition of the payment change such that AAVE is replaced with a stable coin or wETH. Although we like the “skin in the game” alignment, our preference is for this exposure to be attained via a different means. We advocate for this to be the direction of all future funding requests, AGD and Service Providers alike.

TokenLogic vote: YAE

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I’m supportive of this proposal.

Chaos Labs have gone above and beyond for the Aave community, proving themselves at a lower cost in an extremely challenging environment. As the ACI said, fair work deserves fair pay so I hope to see this proposal pass.

On having two risk providers - in my opinion having both Chaos and Gauntlet has been one of the best things to happen to the DAO in a while. Between them the cost is relatively expensive, but as a % of DAO spending it’s probably reasonable.

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We appreciate the engagement and support on this proposal.

Update - based on input from various community members, we’ve adjusted the payment structure to be exclusively in aUSDT, instead of the 70/30 aUSD/AAVE distribution proposed originally.

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We have published a Snapshot for the community to vote on, starting in 24h.

Thank you in advance for your participation in the vote.

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We support this proposal to amend Chaos Labs Compensation, we see the value that Chaos Labs continues to add, and this expansion in scope will enable Chaos Labs to provide more value to Aave.

Considering the addition of GHO and the additional risk management required, the DAO could explore increasing the $3M budget.

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During the last year of collaboration, Chaos Labs has been a quite involved service provider, both by executing the tasks on the scope, understanding the nuances of participating in a decentralized DAO, and coordinating with other providers.

In my opinion, the risk services required by the protocol should be re-evaluated holistically soon, both in terms of scope and budget, but this request for funding is totally reasonable at the current moment.

Support.

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Chaos has been a great partner to Aave, adding alternative perspectives, gusto, and risk modeling.

We push the community to not view these two providers and their budgets as a zero-sum game; the proposal and ask should be evaluated in terms of what Chaos has provided (and may continue to.)

Some of the comments seem more eager to decrease Gauntlet’s budget than they are to increase Chaos’; let’s better align on the topic of this discussion – not that.

The goal is to create a more harmonious, fair future.

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Disclaimer: Wintermute Ventures is an investor in Chaos Labs

The team at Chaos Labs are extremely professional and proactive and we have thoroughly enjoyed working with them inside and outside of Aave.

We believe they add immense value to The Aave DAO as a risk service provider alongside Gauntlet. The compensation increase seems fair given the expanded work scope.

We are supportive of this proposal!

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AIP-304 has been published for this proposal, with voting starting in less than 24h.

Thank you in advance for your participation in the vote.

Technical update - After feedback from community members and current efforts to migrate from V2, the proposal will transfer the requested amount from V2 to V3 and create the stream from V3. Implementation can be found in the AIP

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