Summary
LlamaRisk supports the Aave V3 deployment on Ink, an L2 built on OP Stack and launched by Kraken on December 15, 2024. The key risks identified were a centralized sequencer and the presence of instantly upgradable contracts. Additionally, the DeFi ecosystem on Ink is still in its early stages, with a low TVL of $5.82M. On the stablecoin front, the reliance on LayerZero-powered USDT0 (a new standard) instead of native USDT and the absence of natively minted USDC (Stargated-bridged USDC.e is the alternative) introduces additional third-party risks. Notably, Chainlink data feeds are not yet live on Ink but are expected to launch soon.
1. Network Fundamental Characteristics
1.1 Network Overview
Ink is an L2 built on Optimism’s OP Stack and launched by Kraken, featuring 1-second block times. As part of the Superchain, a unified network of blockchains, like Base and OP Mainnet, Ink benefits from Ethereum’s security and adheres to the SuperchainERC20 standards, enhancing interoperability. Since OP Stack chains follow the EVM Equivalence model, smart contracts can be deployed on Ink without modifications when transitioning from L1 to L2.
Security
As Ink is built on the OP Stack, it inherently benefits from Optimism’s $2M Immunefi bug bounty for shared vulnerabilities. Also, Kraken has its own $1.5M bug bounty program, which includes “inkonchain.com” in its scope; however, it’s unclear if it includes smart contracts. The OP Stack smart contracts have undergone multiple audits, with the most recent audit conducted in October 2024.
The OP Stack ensures sequencer-level security, but risks remain. Fraud proofs depend on at least one honest validator, which might put funds at risk if no validator verifies the published state. Additionally, since contracts are instantly upgradable, users have no exit window in the event of an unwanted upgrade.
1.2 Decentralization and Legal Evaluation
The Optimism Collective handles the governance process, which protects the security of the Superchain (all chains building under it). The current model of governance consists of two houses (both have veto rights over each other):
- The Token House: OP token holders or delegates who discuss and vote on governance proposals.
- The Citizens’ House: A group of reputed community members with a non-pluralistic vote (1 person = 1 vote) responsible for voting on Retro funding.
As part of the Superchain, Inkchain shares revenue with the Optimism Collective, which participates in governance decisions. Ink’s fee split follows a structured model, set at the greater of either 2.5% of chain revenue or 15% of on-chain profit (calculated as fee revenue minus L1 gas costs). Ink’s sequencer is centralized, with Kraken managing transaction ordering before submitting them to Ethereum and earning revenue for providing this service similar to Coinbase.
Source: Ink Smart Contract Architecture, L2BEAT.
All L1 contracts are upgradable by the SuperchainProxyAdmin, which is owned by a 2/2 Safe multisig managed by the Optimism Foundation (5/7 Safe multisig) and the Security Council (10/13 Safe multisig). The SystemConfig contract is critical as it manages parameters like Sequencer address, gas limits, and the unsafe block signer. It is owned by a 4/10 Safe multisig.
On Ink Mainnet, the ProxyAdmin can upgrade all contracts. It is owned by an EOA (might be an MPC, though unclear), posing a significant risk as it creates a centralized point of failure, making the network vulnerable if the key is compromised.
Legal Commentary
Ink Foundation, a Cayman Islands foundation, provides user interface services to facilitate easier access to certain Ink functionalities, such as its bridge smart contracts. Interfaces or application deployments by third parties do not constitute part of the Ink Foundation’s services. The Foundation additionally operates the Ink Testnet.
Ink, structured as a layer 2 optimistic rollup, is built on open-source software outside the Ink Foundation’s direct control. Despite including bridging capabilities, the Foundation does not acquire possession, custody, or control over any digital assets on Ink or those transferred to the bridge smart contracts.
An independent entity known as Kraken Continuance (whose registration details are not publicly traceable) operates the Kraken Sequencer: a node that receives, logs, and compiles multiple transaction records from Ink into batches, which are then settled on the Ethereum blockchain following a specified format. While users may elect to employ the Kraken Sequencer, they do so subject to any applicable gas fees, which may be altered at any time. Under the Terms of Service, the Kraken Sequencer neither stores nor assumes possession, custody, or control of a user’s digital assets at any point, apart from receiving the requisite gas fees. It likewise lacks authority to modify, reverse, or otherwise alter transactions submitted to the Ethereum blockchain.
Eligibility conditions apply to users of both the Foundation’s and Kraken Continuance’s services, requiring, among other things, that users be of legal age, that entities be in good standing, and that they not reside in or be organized under the laws of any jurisdiction subject to sanctions or embargoes. Users are further prohibited from being listed on—or directly or indirectly controlled by any individual or entity listed on—the United States Office of Foreign Assets Control (OFAC) Specially Designated Nationals and Blocked Persons List, the U.S. Department of Commerce’s Denied Persons List, the UN Security Council Consolidated List, or any similar regional or foreign government watchlist.
1.3 Activity Benchmarks
Source: Ink Total Value Secured (TVS), L2BEAT, February 19, 2025.
Ink currently secures a total value secured (TVS) of $94.42M, with $23.58M transferred via Ink’s native bridge (canonical) and $70.94M brought in through third-party bridges (external). Assets are not yet being natively minted. However, the total value locked (TVL) in DeFi protocols on Ink is just $5.82M—only 6.2% of the TVS. This indicates that most bridged assets remain idle, with limited engagement in on-chain DeFi activity.
Source: Ink TVL, DeFiLlama, February 19, 2025.
2. Network Market Outlook
2.1 Market Infrastructure
Source: DeFi Projects on Ink by TVL, DeFiLlama, February 19, 2025.
There are a total of 15 DeFi projects on Ink. the top projects category-wise with TVL:
Most of Ink’s TVL is concentrated in DEXs, indicating an underdeveloped DeFi ecosystem. Currently, the network hosts only a single lending protocol and one liquid staking platform, with no derivative or restaking solutions available.
Tooling
Ink is supported by 16 bridges, the leading ones in volume being Owlto, Rhino Fi, and Orbiter Finance, with its cross-chain infrastructure provided by LayerZero and Wormhole.
Rainbow and Kraken Wallet are the only native wallet providers for Ink. However, Ink Mainnet can be manually added as a custom network in compatible wallets like MetaMask, Zerion, and Rabby. Kraken Wallet also functions as an on-ramp, allowing users to purchase assets with fiat. Additionally, Ink hosts Safe’s official instance, providing multisig support.
RPC node services are provided by Alchemy, Gelato, QuickNode, Tenderly, and dRPC. API3, eOracle, Pyth, Redstone, and SEDA are the oracle providers for Ink with Chainlink support coming soon.
2.2 Liquidity Landscape
Stablecoin
The stablecoin distribution on Ink is as follows (as of February 19, 2025):
USDT0 deployment on Ink was announced by Tether as part of its new token standard, utilizing LayerZero’s Omnichain Fungible Token (OFT) framework to streamline cross-chain USDT transfers. USDT0 can be redeemed for USDT on Ethereum or transferred to supported chains through this platform. Stargate-bridged USDC.e is available on Ink, as native USDC minting has not yet been introduced.
DEXs
Top 5 LPs by TVL across Ink (as of February 19, 2025):
The 24-hour volume indicates that most trading activity is concentrated in stablecoin and WETH pools.
Source: USDT0 & USDC.e swaps against WETH with <5% slippage, SuperSwap, February 19, 2025.
The DEX liquidity for USDT0 on Ink, within the 5% slippage (equal to the liquidation bonus, see Section 5.1), stands at $0.64M, relatively low compared to its total supply of $71M. In contrast, USDC.e demonstrates a stronger liquidity ratio, with $0.37M in liquidity against a total supply of $0.86M.
2.3 Ecosystem Resilience
The sequencer is safeguarded by a 7-day challenge period, allowing anyone on the network to submit a fraud-proof to Ethereum’s mainnet if they detect a fraudulent transaction. If proven, the malicious transaction is reversed, and the attacker is penalized.
Also, developers on Ink benefit from Hypernative, which offers real-time threat prevention, ecosystem monitoring, and risk management. Using advanced machine learning, it detects and mitigates risks across smart contracts, bridges, and wallets. With this partnership, projects on Ink gain access to Hypernative’s security tools, ensuring resilience and proactive risk mitigation.
2.4 Ecosystem Growth Potential
Source: Ink Onchain Metrics, Dune, February 19, 2025.
Since Ink’s launch on December 15, 2024, TVL and active addresses have steadily increased. Kraken’s involvement further strengthens Ink’s credibility and adoption, potentially driving greater institutional and retail participation. This growth trajectory can mirror the Coinbase-Base dynamic, where exchange-backed ecosystems attract broader user adoption over time. Though Kraken has not explicitly committed to liquidity assistance, it continues to support Ink through integrations, such as the recent USDT0 launch. Additionally, Kraken secured a 25M OP token grant from the Optimism Foundation last year to fund Ink’s engineering efforts.
2.5 Major and Native Asset Outlook
Ink uses ETH as the native gas token, and there are currently no plans to launch any token from Kraken.
Major DeFi tokens present on Ink, with market cap (as of February 19, 2025):
- USDT0 ($71M) - USDT with LayerZero’s OFT standard
- WETH ($4.5M) - Native
- USDC.e ($0.86M) - Stargate bridged USDC
- iETH ($267K) - ETH LST from Dinero
- xVELO ($69K) - LP reward token from Velodrome
- SQUIDS ($0.99M) - associated with SquidSwap & SquidPump
3. Onchain discoverability
The Ink ecosystem is supported by a diverse range of tools, including blockchain explorers such as Blockscout and OKX Explorer, alongside data indexers like Goldsky, Alchemy, Dune, and Flipside.
Analytics dashboards are available on platforms such as DeFiLlama, TokenTerminal, InkOnChain, Dune, and Flipside, offering detailed insights into the Ink ecosystem.
4. Impact of AAVE Deployment
Kraken aims to scale its L2 by leveraging the trust it has built with its existing customer base, positioning Ink as the preferred venue for Kraken traders. Aave’s deployment can significantly strengthen Ink’s emerging lending ecosystem, which currently features only one protocol, Ionic, with $33K TVL and 0% utilization. Notably, Ionic was exploited for $8.6M on Mode on February 4, 2025, underscoring the need for a robust lending platform.
Aave’s presence is expected to drive liquidity, attract more users and assets, and establish a stronger foundation for DeFi activity on Ink. This, in turn, could encourage additional protocols and developers to build on the network, accelerating its overall growth.
5. Asset suggestions
Our asset onboarding methodology is guided by three key criteria: prior successful integration and risk assessment within the Aave ecosystem, the asset’s TVL on the network, and its available liquidity relative to total TVL. Based on these factors, we recommend onboarding the following assets:
| Asset |
Onchain Supply |
Liquidity (within LB) |
Suggested Supply Cap |
| USDT0 |
71M |
642,000 |
1,284,000 |
| WETH |
1646 |
283 |
566 |
| USDC.e |
0.86M |
370,000 |
370,000 |
USDT0, a new token from Tether, and USDC.e, despite being a bridged variant from Stargate, have been selected due to their high usage on the network. Since WETH is a well-established asset and Tether offers seamless bridging for USDT0 via LayerZero, we recommend setting their supply caps at 2x the available liquidity. For USDC.e, the supply caps are set at 1x the available liquidity due to its limited onchain supply. Meanwhile, DeFi tokens like iETH, xVELO, and SQUIDS have not been considered for onboarding, as they are new to Aave and require a separate, in-depth risk assessment.
5.1 Aave V3 Specific Parameters
Will be presented jointly with @ChaosLabs.
Disclaimer
This review was independently prepared by LlamaRisk, a community-led non-profit decentralized organization funded in part by the Aave DAO. LlamaRisk is not directly affiliated with the protocol(s) reviewed in this assessment and did not receive any compensation from the protocol(s) or their affiliated entities for this work.
The information provided should not be construed as legal, financial, tax, or professional advice.
