November-December 2022
Overview
Chaos Labs is happy to share our first community update. In this update, we will highlight the past month’s activities and proposals and share our planned work moving forward.
Highlights
- Began our official engagement on November 7th, 2022 - the full scope of the engagement can be found here.
- Hosted our first community call, where we introduced the Chaos team, discussed our roadmap for the coming months (read here for more details), and showed a sneak peek at the Chaos Parameter Recommendation Platform.
- Proposed AIP-125 with @Llamaxyz to allow users to deposit assets across several reserves following the CRV attack and initial freezing of the markets.
- Published four more proposals (list below) across v2 and v3 deployments for risk parameter updates, including - supply and borrow caps, disabling borrows, unfreezing assets, and amending liquidation thresholds and LTVs.
- Published several analyses and methodologies to support community discussion and decision making including:
What’s Next
In the coming month, the Chaos team will be focused on a few areas:
- Ongoing and proactive risk management in v2 and v3 markets
- Supporting the deployment of v3 Ethereum
- Initial risk parameter recommendations for the assets to be deployed on the network. We are working closely with the BGD team and other protocol contributors and shared our initial methodology and recommendations with the community. In the coming weeks, the community will decide on the initial assets and risk parameters for the deployment launch.
- Discussion and research on risk analysis regarding the upcoming GHO launch - more on this to come over the coming weeks.
- Parameter Recommendation Dashboard - we are in the final stages of work on all fronts (data, infra, UI) with planned delivery in 3-4 weeks.
- We put forward a proposal to formally cover v2 markets and include proactive risk analysis and management while encouraging and supporting a safe migration to the upcoming Ethereum v3 deployment - the full details can be found here. After passing the initial Snapshot, we will formally post an AIP the first week of January.
We thank the community for the support, feedback, and involvement over this past eventful month. We invite the community to reach out with any question, feature request, or any other concern!
15 Likes
January 2023
Overview
In this update, we highlight the past month’s activities and proposals and share our planned work moving forward.
Highlights
- Following a detailed community discussion around the launch of Ethereum V3, our proposal for initial onboarded assets was chosen by the community. We are super excited about the launch of V3 on Ethereum and looking forward to continuously amending risk parameters and adding new assets to the deployment.
- Suggested a framework for collaboration between Aave risk managers. This framework aims to create clarity for the Aave community around risk-related items while maximizing the advantages of multiple risk managers in the protocol.
- The Chaos and Gauntlet (@paulieJ @deepa) teams have been utilizing this framework as a basis for our collaboration. We have set up open communication lines, bi-weekly syncs, and a shared work tracker and are working on providing clear proposals and recommendations for the community.
- The teams collaborated and proposed joint recommendations for the initial parameters of the cbETH and rETH listings to Ethereum V3.
- Published a community framework for recommending risk parameters for new asset listings.
- Supported @llama on the CRV Interest Rate Curve Upgrade proposal, utilizing our supply and borrow cap methodologies to recommend updated caps for CRV on Polygon V3.
- Provided analysis and recommendation for a supply cap for AAVE on Optimism V3. The community decided to move forward with Gauntlet’s proposal to reduce immediate tail risk, which is planned to be followed by a more comprehensive community discussion around methodology assumptions and community risk appetite.
- Our proposal to formally cover V2 markets and include proactive risk analysis and management while encouraging and supporting a safe migration to the upcoming Ethereum V3 deployment was approved by the community. We thank the community for this vote of confidence in Chaos Labs.
What’s Next
In the coming month, the Chaos team will focus on the following few areas:
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Optimization of risk parameters following the launch of our V3 Monte Carlo simulation framework
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V2 → V3 transition:
- Methodically amending asset parameters to incentivize new users to migrate accounts to V3.
- Helping analyze incentive (both treasury- and parameter-managed) schemes to incite account transitions.
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Analysis and parameter recommendations for new assets and markets:
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wstETH (V3 Arbitrum), sfrxETH (V3 Ethereum), LUSD (V3 Ethereum) - working on providing risk parameter recommendations for the said assets.
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Metis and Celo networks - working on providing recommendations on the initial list of assets and parameter configurations to allow a final Snapshot to approve the deployment.
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Discussion and research on risk analysis regarding the upcoming GHO launch
1 Like
February 2023
Overview
In this update, we highlight the past month’s activities and proposals and share our planned work moving forward.
Highlights
- We launched the Chaos Labs Parameter Recommendation Platform, making it easier for users to identify the tradeoffs between risk parameters. This platform will further contribute to a better understanding and transparency of the parameter recommendation process. We invite the community to read our full in-depth blog post and portal run-through here.
- Added support for Ethereum V3 into the Chaos Risk Dashboard.
- Published our Updated Supply and Borrow Cap Methodology. We are in the process of formalizing a more robust supply and borrow cap methodology to serve the future needs of Aave V3, which we will complete in the coming weeks.
- Published seven proposals (list below) across V2 and V3 deployments for risk parameter updates, including - LT, LTV, LP, and Supply/Borrow Caps:
- Proposals approved by governance:
- Proposals still in the Governance process:
- Provided analysis and supported the following proposals:
What’s Next
In the coming month, the Chaos team will focus on the following few areas:
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Continuous optimization of risk parameters on V3 deployments
- Integrate and add support for V3 Optimism and Polygon into the Chaos Labs Parameter Recommendation Platform.
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Discussion and research on risk analysis regarding the upcoming GHO launch.
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Analysis and parameter recommendations for new assets and markets.
Current WIP:
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UNI (V3 Ethereum), SNX (V3 Ethereum), YFI (V3 Ethereum), MKR (V3 Ethereum), and LDO (V3 Ethereum)- working on providing risk parameter recommendations for the said assets.
- Analysis for adding cbETH to Ethereum-correlated E-Mode.
1 Like
March 2023
Overview
This update highlights the past month’s activities and proposals and shares our planned work.
Highlights
- USDC depeg - following the USDC depeg, the Chaos team started a “war room” to monitor and analyze the markets while providing community recommendations to mitigate risk. The summary of events can be found in our blog post.
- We published our evaluation of the stablecoin e-Mode category. In this analysis, we examined several alternatives to mitigating future shortfalls due to stablecoin depegs while examining their impact on risk and protocol reward.
- GHO
- Provided our analysis and recommendations for the GHO genesis parameters, including bucket capacity, borrowing rates, and target DEX liquidity figures.
- Launched the GHO Risk Monitoring Dashboard. This new dashboard, currently supporting the Goerli test net version of GHO, provides real-time monitoring of the stablecoin and allows users and developers to dive deep into GHO data and usage. For more details and product run-through, please read our dedicated blog post.
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We published our E-Mode Methodology. In the methodology, we analyze two key properties as a requirement for E-mode assets: Pairwise prices must (1) be historically mean reverting and (2) they must mean-revert fast. The full paper can be found here.
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Published our Isolation Mode Methodology. We have adopted a stress-testing
framework to recommend debt ceilings for isolated assets and utilize this methodology in our recommendations for new asset listings. The full paper can be found here.
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We provided our recommendations on the V2 → V3 migration process. Chaos views this as an iterative process while evaluating individual use cases and taking appropriate actions accordingly. The full post can be found here.
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Eight proposals were published (listed below) across V2 and V3 deployments for risk parameter updates and risk mitigation.
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Provided analysis and supported the following proposals:
What’s Next
In the coming month, the Chaos team will focus on the following few areas:
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Community plan for V2 → V3 migration is based on the principles laid here
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Continuous optimization of risk parameters on V3 deployments
- Integrate and support V3 Polygon into the Chaos Labs Parameter Recommendation Platform.
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New features on the Chaos Risk Monitoring Platform to improve community engagement.
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Analysis and parameter recommendations for new assets and markets.
Current WIP:
April 2023
Overview
This update highlights the past month’s activities and proposals and shares our planned work.
Highlights
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We published our new Supply Cap Methodology. In this iteration of our methodology, we introduce a new stress-testing framework for setting the supply cap for each token, leveraging the Chaos Labs simulation platform. To find the optimal supply caps, we stress-test each token against appropriate stress scenarios based on historical data to measure the potential accrual of bad debt in these situations.
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Published the Chaos Labs - LSD Methodology Update. In this post, we walk through our framework for establishing risk parameters for Liquid Staking Derivatives, taking into account redeemability mechanisms, Oracle composition, liquidity, counterparty risk, and more.
- Initiated a community vote to gauge the community’s preference with respect to limiting the supply caps for LSDs, which will be considered in future supply cap recommendations.
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Following the community vote on V3 migration lever preferences, we prepared a comprehensive set of recommendations aimed at facilitating a seamless and successful migration from Aave V2 to V3 on Ethereum. This will be a multi-phased process that will include the completion of asset listing on V3 alongside parameter updates across V2 and V3 assets to promote migration. The full post can be found here.
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Added support for Polygon on the Chaos Labs Parameter Recommendation Platform. The platform now supports Avalanche, Arbitrum, Optimism, and Polygon, with Ethereum to follow shortly.
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Three proposals were published (listed below) for risk parameter updates and mitigation.
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Provided analysis and supported the following proposals:
What’s Next
In the coming month, the Chaos team will focus on the following few areas:
- Publish Chaos Labs’ IR Curves methodology
- Community plan for V2 → V3 migration as described here
- Continuous optimization of risk parameters on V3 deployments
- Integrate and support V3 Ethereum into the Chaos Labs Parameter Recommendation Platform.
- Adding features and improvements to the Chaos Risk Monitoring Platform to improve community engagement.
- Analysis and parameter recommendations for new assets and markets.
2 Likes
May 2023
Overview
This update highlights the past month’s activities and proposals and shares our planned work.
Highlights
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We launched the Chaos Labs Asset Listing Portal, a tool built into the Chaos Labs Parameter Recommendation Platform to support the onboarding of new assets to the Aave protocol. The Asset Listing Portal is designed to help streamline community decision-making by presenting key metrics about the considered assets, such as volatility, exchange liquidity, market cap, on-chain activity, and the initial risk parameter recommendations for the considered assets by Chaos Labs. A walkthrough of the portal and its features can be found here.
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Added support for Ethereum on the Chaos Labs Parameter Recommendation Platform. The platform now supports Avalanche, Arbitrum, Optimism, and Polygon, and Ethereum, with Metis to follow next.
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Following the Chaos Labs - LSD Methodology Update, we provided our recommendations for updating the pricing of LSDs to use primary exchange rates, which alongside BGD’s Generalized price sync solution, could allow for more aggressive risk parameter settings. The full details on this coming change can be found on the BGD Operational oracles update.
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Three proposals were published (listed below) for risk parameter updates and new asset listings as part of the efforts for V2 → V3 migration.
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Provided analysis and supported the following proposals:
What’s Next
In the coming month, the Chaos team will focus on the following few areas:
- Publish Chaos Labs’ IR Curves methodology
- Community plan for V2 → V3 migration as described here
- Continuous optimization of risk parameters on V3 deployments
- Integrate and support V3 Ethereum into the Chaos Labs Parameter Recommendation Platform.
- Adding support for Polygon and Avalanche V2 on the Chaos Risk Monitoring Platform to improve community engagement.
- Analysis and parameter recommendations for new assets and markets.
3 Likes
June 2023
Overview
This update highlights the past month’s activities and proposals and shares our planned work.
Highlights
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Following a community discussion around the CRV market on Aave V2, Chaos proposed an alternative strategy to freezing the market. Following the community discussion, we put forward a series of proactive proposals to reduce exposure on v2 and further encourage users to migrate positions to v3:
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Over the weekend of June 10th, the markets experienced significant turbulence following the SEC filings against Binance and Coinbase. The Chaos team was closely monitoring the markets to prepare risk-mitigating strategies for various developments. During this time, the protocol encountered orderly liquidations and did not necessitate any immediate or additional actions.
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We are constantly iterating and improving the Chaos Risk Monitoring Platform and have added support for Polygon and Avalanche V2 data and analytics. In addition, we have added support for Metis on the Chaos Labs Parameter Recommendation Platform. The platform now supports all Aave V3 deployments.
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We published the following proposals for risk parameter updates and new asset listings as part of the efforts for V2 → V3 migration.
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Provided analysis and supported the following proposals:
What’s Next
In the coming month, the Chaos team will focus on the following few areas:
- Continuation of the community plan for V2 → V3 migration as described here
- Additional V2 risk parameter updates to gradually reduce capital efficiency across V2 collateral assets.
- Continuous optimization of risk parameters on V3 deployments.
- Analysis and parameter recommendations for new assets and markets.
2 Likes
July 2023
Overview
This update highlights the past month’s activities and proposals and shares our planned work.
Highlights
- On the weekend of July 22nd, the MAI token underwent considerable fluctuations, with the price dropping to a low of nearly $0.91. Even though we didn’t recommend immediate actions, we proposed a measure to curtail the exposure on Aave while the market continues to evolve. This suggestion entailed drastically reducing supply and borrow caps as well as debt ceilings across all applicable deployments (Avalanche, Optimism, Arbitrum, Polygon).
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Following the community discussion around the CRV market on Aave V2 in June, Chaos proposed an alternative strategy to freezing the market. Chaos has since put forward and executed 2 proposals to decrease LT and LTV for CRV on V2 Ethereum, with the community opting for a more aggressive reduction of these parameters in the most recent iteration.
- Update: This proposal was canceled following the Vyper exploit and CRV price volatility.
- Chaos Labs is continuing to evaluate the CRV market on Aave and has provided the following analysis and recommendations.
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We published the following proposals for risk parameter updates and new asset listings as part of the efforts for V2 → V3 migration.
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Provided analysis and supported the following proposals:
What’s Next
In the coming month, the Chaos team will focus on the following few areas:
- GHO - following the launch of GHO and initial discussion surrounding the GSM, GHO Steward, Liquidity Pools, and more, we are prepared to support the community on all GHO-related initiatives.
- Continuation of the community plan for V2 → V3 migration as described here
- Continuation of the V2 risk parameter updates to gradually reduce capital efficiency across V2 collateral assets.
- Continuous optimization of risk parameters on V3 deployments.
- Analysis and parameter recommendations for new assets and markets.
3 Likes
August 2023
Overview
This update highlights the past month’s activities and proposals and shares our planned work.
Highlights
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Following the Vyper Exploit and the ongoing discussions concerning the CRV market on v2 Ethereum, we continued to push the deprecation of the CRV market on V2 via a series of LT reductions. The deprecation plan approved by the community can be found here. In the days following the Vyper exploit, we published AIP-292 to reduce CRV LT by an additional 6% and AIP-293 to disable CRV borrowing on V3.
- Over the past month, the top account has repaid over 50M USDT and redeemed nearly 200M CRV as we continue to wind down the market.
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We launched the latest version of our Risk Portal, unifying the Chaos Labs Risk Hub, Asset Listing Portal, and Recommendation Portal into a single user interface. This unified platform simplifies the process of accessing recommendations along with supporting data and pertinent risk monitoring and alerting. Read more on our dedicated blog post, including a full product run-through here.
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We supported the recent launch of Base with initial parameter recommendations and integration of the deployment to our Risk Portal post-launch. As usage on Base grows, we will continue supporting with parameter optimization, supply and borrow cap recommendations, and new asset listings.
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The community has approved [ARFC] - Chaos Labs Scope and Compensation Amendment, to formally expand our scope of work to cover all of Aave, including V2 and GHO. We thank the community for this vote of confidence in Chaos Labs!
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We published the following proposals for risk parameter updates and new asset listings:
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Provided analysis and supported the following proposals:
What’s Next
In the coming month, the Chaos team will focus on the following few areas:
- GHO - Following the launch of GHO and initial discussion surrounding the GSM, GHO Steward, Liquidity Pools, and more, we are prepared to support the community on all GHO-related initiatives.
- Continuation of the community plan for V2 → V3 migration as described here
- Continuation of the V2 risk parameter updates to gradually reduce capital efficiency across V2 collateral assets. The AIP for the most recent proposal will be published shortly
- Continuous optimization of risk parameters on V3 deployments.
- Analysis and parameter recommendations for new assets and markets.
3 Likes
September 2023
Overview
This update highlights the past month’s activities and proposals and shares our planned work.
Highlights
- Aave V2 Markets Depreciation Plan - As part of our ongoing efforts to wind down V2 markets and promote migration to V3, Chaos Labs and Gauntlet have collaborated on a structured plan designed to progressively reduce the activity in the frozen markets by implementing a series of LT reductions. This will be done on a bi-weekly basis, where the parties will post a joint recommendation utilizing the direct-to-AIP framework.
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Chaos Labs’ CRV V2 Ethereum Deprecation Plan - On September 25th, 2023, account 0x7a16ff8270133f063aab6c9977183d9e72835428 fully repaid their loan and redeemed their entire CRV position. With this, the CRV market on Aave V2 Ethereum is now in a healthy state, with the market boasting ample on-chain liquidity to facilitate liquidations even in the face of substantial price volatility. Moving forward, to reduce governance overhead, we intend to include recommendations for further CRV LT reductions within the broader Aave V2 markets deprecation plan described above.
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We published the following proposals for risk parameter updates and new asset listings:
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Provided analysis and supported the following proposals:
What’s Next
In the coming month, the Chaos team will focus on the following areas:
- GHO - Following the launch of GHO and initial discussion surrounding the GSM, GHO Steward, Liquidity Pools, and more, we are prepared to support the community on all GHO-related initiatives.
- Continuation of the V2 risk parameter updates to gradually reduce capital efficiency across V2 collateral assets.
- Continuous optimization of risk parameters on V3 deployments.
- Analysis and parameter recommendations for new assets and markets.
October 2023
Overview
This update highlights the past month’s activities and proposals and shares our planned work.
Highlights
What’s Next
We are excited to share our renewal proposal and look forward to continuing to serve the DAO in the coming year. The proposal focuses on our comprehensive risk management and optimization platform and services for Aave, covering the entire spectrum of Aave, including V2, V3, and GHO, across all current and future deployments.
In the coming months, the Chaos team will continue its focus on the following areas:
- GHO
- Continuation of the V2 risk parameter updates to gradually reduce capital efficiency across V2 collateral assets.
- Continuous optimization of risk parameters on all V3 deployments.
- Analysis and parameter recommendations for new assets and markets.
1 Like
November 2023
Overview
This update highlights the past month’s activities and proposals.
Highlights
- KNC Exploit - Following the exploit on the KyberSwap DEX on November 22nd, we conducted a comprehensive analysis to assess its impact on Aave. In our evaluation, we emphasized that the incident did not introduce significant risk to the protocol. This was primarily due to the conservative parameters set for the asset and its limited usage on the protocol. As a precautionary measure to safeguard the protocol against unforeseen developments, we recommended a temporary freeze. However, as the price of KNC stabilized and considering its conservative parameter settings, we ultimately decided not to proceed with an AIP.
- Grace Sentinel Authorization - following the security threat reported on November 4th, which led to the pausing of several V2 and V3 pools by the Aave Guardian, we collaborated with other community members on the plan of reactivating the affected pools. Together with Gauntlet, we provided final recommendations to the Aave Guardian on activating the Liquidations Grace Sentinel, a newly developed mechanism with the primary objective of safeguarding users who were unable to refill or repay their positions during the pause, protecting them from liquidation upon the resumption of normal protocol operations.
- We supported the recent launch of Gnosis Chain with initial parameter recommendations and its integration into our Risk Portal post-launch. As usage on the deployment continues to grow we are prepared to support with parameter optimization, supply and borrow cap recommendations, and new asset listings.
- Chaos’ renewal proposal has passed with unanimous support. We are truly grateful for this vote of confidence and are deeply committed to our ongoing collaboration with the community. We look forward to continuing our hard work in securing Aave and maintaining the protocol’s position as market leader.
What’s Next
In the coming months, the Chaos team will continue its focus on the following areas:
- GHO
- Continuation of the V2 risk parameter updates to gradually reduce capital efficiency across V2 collateral assets.
- Continuous optimization of risk parameters on all V3 deployments.
- Analysis and parameter recommendations for new assets and markets.
1 Like
December 2023
Overview
This update highlights the past month’s activities and proposals.
Highlights
- Stablecoin IR Updates - we put forward a proposal to increase the stablecoin interest rate parameters across all Aave deployments. Despite recent adjustments under AIP-375, there’s continued volatility in borrow rates. An analysis of the Ethereum V3 platform shows a significant increase in both the supply and borrowing of stablecoins like USDC, USDT, and DAI, indicating that the market positively received these changes. However, the utilization rates post-AIP-375 show that the increase did not stabilize utilization as expected, highlighting the need for further adjustments. The proposal recommends increasing the Slope1 parameter to 6% for stablecoins across all Aave deployments to achieve a more stable and predictable borrowing rate, with a focus on maintaining equilibrium utilization under the UOptimal point.
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As part of our ongoing initiative to phase out V2 markets, we’ve put forward an additional proposal, in collaboration with Gauntlet, to lower Liquidation Thresholds for frozen assets on V2 Ethereum and Polygon. Following the implementation of AIP-404, several assets on Aave V2 now have their liquidation thresholds set close to zero, effectively removing their functionality as collateral. These assets include CVX, DPI, ENJ, MANA, REN, SNX, and YFI on Ethereum, and SUSHI, DPI, BAL, CRV, GHST, and LINK on Polygon.
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We published the following proposals for risk parameter updates:
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Provided analysis and supported the following proposals:
2 Likes
January 2024
Overview
This update highlights the past month’s activities and proposals.
Highlights
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AMPL borrow rate reductions - as detailed in the discussion initiated by BGD regarding the issues with AMPL token on V2 Ethereum, we have seen an abnormal exponential deviation within the AMPL market, particularly in the context of aAMPL/total supplied liquidity/vAMPL supply values. Although the exact cause of this shift is still under investigation, it appears linked to the unique aAMPL implementation. Specifically, the scaled total supply of the underlying AMPL in the market, and thus by proxy aAMPL supply, seems to rebase irrespective of the utilization rate, in addition to the high interest rates realized by the aAMPL. While the issue is still being investigated by the AMPL team, we recommended reducing the AMPL borrow rates to mitigate the accelerated growth of aAMPL supply.
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We’ve significantly enhanced the Chaos Labs GHO Risk Monitoring Portal, transforming it into a centralized hub for all things GHO. This revamped portal is meticulously designed to house all GHO-related data, charts, and analytics under intuitive tabs for Overview, Risk, and Liquidity. It delivers a comprehensive analysis of GHO, showcasing everything from price and market cap to trading volume, the amount borrowed, and a detailed breakdown of collateral assets. With sophisticated charts revealing GHO’s liquidation risks, the major token holders, borrowing trends on Aave, and the on-chain liquidity across diverse DEXes, these upgrades elevate the portal’s capacity to offer profound insights into the market dynamics, risk assessments, and liquidity scenarios of GHO.
- We supported the recent launch of BNB Chain with initial parameter recommendations and its integration into our Risk Portal post-launch. As usage on the deployment continues to grow we are prepared to support with parameter optimization, supply and borrow cap recommendations, and new asset listings.
- We published the following proposals for risk parameter updates:
- Provided analysis and supported the following proposals:
What’s Next
In the coming months, the Chaos team will continue its focus on the following areas:
- Correlated-asset price oracle - provide initial parameter recommendations
- GHO
- Continuation of the V2 risk parameter updates to gradually reduce capital efficiency across V2 collateral assets.
- Continuous optimization of risk parameters on all V3 deployments.
- Analysis and parameter recommendations for new assets and markets.
February and March 2024
This update highlights Chaos Labs’ activities and proposals for February and March.
Highlights
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We published a framework for setting the relevant parameters for CAPO - correlated asset price oracle, referring to the expected annual growth of a correlated asset, to deter against unexpected, artificial inflation in the underlying staking rate. We provided initial CAPO recommendations, which have been implemented for all relevant assets on Aave V3.
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We analyzed how WETH interest rates on Ethereum, Arbitrum, and Optimism were affecting borrowing demand. This included examining the correlations between stETH and WETH APY. We found that the rate of decrease in borrow APY over time outpaces that of the stETH APY and concluded that when stETH APYs are high, borrowers attempt to extract as much revenue as possible, leading to convergence at lower yields. On the contrary, when stETH APYs are low, borrowers and ETH borrow APYs tend to be less aggressive with looping, perhaps due to theoretical scaling in the interest rate requiring smaller growth to become unprofitable, leading to the effective yield scaling higher than instances when stETH APYs are high. This, in turn, leads to less efficient markets and larger spreads when ETH staking yields are low. As a result, we recommended that Arbitrum and Optimism reduce slope1 to enhance utilization rates and revenues.
- We proposed increasing GHO’s minting cap from 35M to 40M following an analysis of GHO. The asset’s liquidity and use cases have been bolstered by the GHOTHENA liquidity pool on Curve, which currently holds 17% of its circulating supply. Additionally, the doubling of stkGHO emissions alongside Interest Rate (IR) adjustments improved peg stability and warranted a cautious increase to GHO’s minting cap.
- Following an analysis of all markets, we proposed an increase in stablecoin IR parameters across all Aave deployments. Following the implementation of an AIP which increased Slope1 to a minimum of 6% across all stablecoin deployments, we observed volatility in borrow rates, spurring us to recommend a further increase of the Slope1 parameter to stabilize borrows under the UOptimal point. Following our analysis, we offered a conservative and aggressive recommendation. These recommendations were updated the following week after sDAI’s APR was increased from 5% to 15%. We further recommended an increase in stablecoin UOptimal from 90% to 92%.
- We published the following proposals for risk parameter updates:
- Provided analysis and supported the following proposals and discussions:
What’s Next
In the coming months, the Chaos team will continue its focus on the following areas:
- GHO - ongoing recommendation, including analysis of cross-chain GHO.
- Continuation of the V2 risk parameter updates to gradually reduce capital efficiency across V2 collateral assets.
- Continuous optimization of risk parameters on all V3 deployments.
- Chaos Labs Risk Oracles
- Analysis and parameter recommendations for new assets and markets.
April 2024
This update highlights Chaos Labs’ activities and proposals for April.
Highlights
- We published an introduction to Risk Oracles, a framework designed to streamline the risk parameter-management process. The conventional approach to monitoring blockchain risk is challenging and marred by significant delays from risk signal detection to implementing protective measures by risk managers and the DAO. This latency is untenable, especially considering the billions in TVL and the inherent market volatility. Risk Oracles serve as the crucial linkage between the analytical prowess of the Chaos Labs Cloud and the practical application of governance-validated recommendations on the blockchain, extending the capabilities of the existing Risk Steward System developed by BGD Labs.
- We published an analysis of the USDP price spike that created $1.36K of bad debt across two wallets. We found that this occurred because the USDP oracle price surged by 16.5% in a single update, pushing respective debt positions well above the liquidation threshold. Consequently, as these positions’ health fell below 1, they began to be liquidated at the inflated relative debt value, with the liquidation bonus further siphoning collateral. As a result, we recommended freezing the USDP (and similar assets) market and have begun the process of deprecating the assets.
- We provided a detailed recommendation for the DAI risk parameter proposal following an in-depth analysis and two proposal options, both involving a decrease in DAI and sDAI LTV while reducing LT based on D3M exposure. The intitial proposal was in response to MakerDAO’s imminent decision to allow up to 600M in sUSDe exposure in its D3M. On Aave, we found that DAI is generally not used as a collateral asset, with just $13.8M in cumulative debt, generating annualized revenue of $107K.
- We published a detailed analysis — in collaboration with BGD Labs — detailing the technical aspects of the aAMPL problem and proposing remediations. We found that the root cause of the problem on the AMPL reserve was a misuse of the custom aAMPL implementation of the supply and borrow indexes as if they would be the same value; the chart below shows the effect of this problem. Additionally, to address the standing of existing aAMPL holders, we proposed a modification to our initial proposal. This adjustment effectively removes the Aave Collector from the equation entirely, opting instead to utilize the liquidity index for the interest component rather than the borrow rate over time.
- We published the following proposals for risk parameter updates:
- Provided analysis and supported the following proposals and discussions:
What’s Next
In the coming months, the Chaos team will continue its focus on the following areas:
- GHO: ongoing recommendations, including parameters for cross-chain GHO.
- Continuation of the V2 risk parameter updates to gradually reduce capital efficiency across V2 collateral assets.
- Continuous optimization of risk parameters on all V3 deployments.
- Further updates on the development of Chaos Labs Risk Oracles.
- Analysis and parameter recommendations for new assets and markets.
1 Like
May 2024
This update highlights Chaos Labs’ activities and proposals in May.
Highlights
Stablecoin Interest Rate Curve Amendment
We proposed updates to the stablecoin interest rate curves on Aave V2 and V3 ahead of an anticipated decrease to the DSR. The proposal aimed to optimize interest rate parameters, thereby improving protocol efficiency and stability.
sUSD Depeg Update
We published an analysis addressing the sUSD depeg event and providing recommendations. The report detailed the impact on the Aave ecosystem, including specific risks that arose during the depeg. We proposed several measures to mitigate future risks, including a freeze.
Parameter Recommendations for sUSD on V3 Optimism
Following our assessment of the sUSD depeg, we recommended unfreezing the sUSD market on V3 Optimism. The proposal included adjustments to risk parameters, such as collateral factors and liquidation thresholds, to ensure market stability.
Aave Deployment on Celo
We supported the proposal for deploying Aave on the Celo network. This deployment aims to expand Aave’s reach by integrating with Celo’s mobile-first platform, enhancing user access and network diversity. The initiative includes detailed technical specifications and deployment strategies to ensure a seamless integration.
Onboarding USDe to Aave V3 on Ethereum
We proposed onboarding USDe to Aave V3 on Ethereum. This addition is part of our efforts to diversify asset offerings on Aave, increasing liquidity and user options. The proposal outlines the benefits of including USDe, such as enhanced liquidity and expanded borrowing options, and provides a thorough risk assessment.
- Over the course of the month, we published the following proposals for risk parameter updates:
- Additionally, we provided analysis regarding the following proposals and discussions:
What’s Next
In the coming months, the Chaos team will continue its focus on the following areas:
- GHO: ongoing recommendations, including parameters for cross-chain GHO.
- Continuation of the V2 risk parameter updates to gradually reduce capital efficiency across V2 collateral assets.
- Continuous optimization of risk parameters on all V3 deployments.
- Further updates on the development of Chaos Labs Risk Oracles.
- Analysis and parameter recommendations for new assets and markets.
June 2024
This update highlights Chaos Labs’ activities and proposals in June.
Highlights
sUSDe CAPO Recommendation
Following our previous recommendation in favor of listing sUSDe, we provided a CAPO recommendation for the market to help reduce the consequences of potential price manipulation. We found that, while difficult to determine an effective value, setting a 14-day minimum snapshot delay and cap of 50% APY, we can effectively adjust the capped value if yield were to surge quickly.
Deployment on zkSync
Following our assessment of the network, we recommended deploying on zkSync, beginning with the assets USDC, USDT, WETH, and wstETH. We found that, while DEX volume has decreased in recent weeks, on-chain liquidity is strong enough to support Aave; on-chain activity also remains high enough to facilitate growth.
Rapid weETH and Scroll Cap Increases
Following a community decision to favor aggressive caps for weETH, we have continued to facilitate increasing its caps, publishing detailed analyses of the markets to ensure that risk is mitigated however possible. Additionally, following incentivizes from Scroll, we observed rapid growth in market size and have been facilitating consistent cap increases on the network.
Scroll
- Over the course of the month, we published the following proposals for risk parameter updates:
- Additionally, we provided analysis regarding the following proposals and discussions:
What’s Next
In the coming months, the Chaos team will continue its focus on the following areas:
- GHO: ongoing recommendations, including parameters for cross-chain GHO.
- Continuous optimization of risk parameters on all V3 deployments.
- Further updates on the development of Chaos Labs Risk Oracles.
- Analysis and parameter recommendations for new assets and markets.
July 2024
This update highlights Chaos Labs’ activities and proposals in July.
Highlights
Stablecoin Interest Rate Adjustments
As part of our regular monitoring of rates, and amidst an alteration to MakerDAO’s Dai Savings Rate, we proposed changes to Aave’s stablecoin rates to ensure they remained competitive. This involved lowering Slope1 from 9% to 6.5% for most stablecoins.
Deploy an Etherfi Aave V3 Instance
We responded to a forum post proposing the creation of a new Aave deployment containing weETH, USDC, and GHO, intended to facilitate borrowing of stablecoins with weETH. We provided a detailed response to the various considerations for this novel market, including disabling USDC as collateral to ensure that users were not gaming rewards by engaging in USDC-USDC looping, as well as disabling weETH borrows so as to not allow weETH-weETH looping.
Rapid weETH and Scroll Cap Increases
We continued to facilitate growth of the Scroll deployment as well as weETH markets. However, the protocol faced liquidity constraints — primarily in the amount of borrowable WETH — that led us to carefully consider and slow the growth of weETH. This was done to prevent WETH borrow rates from spiking, making leveraged yield strategies unprofitable. Additionally, we observed the Scroll market slowing, combined with wstETH reaching 75% of its on-chain supply, limiting our ability to recommend additional cap increases.
- Over the course of the month, we published the following proposals for risk parameter updates:
- Additionally, we provided analysis regarding the following proposals and discussions:
What’s Next
In the coming months, the Chaos team will continue its focus on the following areas:
- GHO: ongoing recommendations, including updating parameters for GHO on Arbitrum.
- Continuation of the V2 risk parameter updates to gradually reduce capital efficiency across V2 collateral assets.
- Continuous optimization of risk parameters on all V3 deployments.
- Further updates on the development of Chaos Labs Risk Oracles.
- Analysis and parameter recommendations for new assets and markets.
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August 2024
This update highlights Chaos Labs’ activities and proposals in August.
Highlights
August 6 Market Events
Following a rapid and severe downturn in markets, we provided an in-depth analysis of all Aave deployments to provide the community with information on the protocol’s health. We found that the protocol had accrued no bad debt.
Increase WETH Optimal Ratio to 90%
We responded to a post by ACI proposing to increase the WETH Optimal Ratio to 90% on the deployments where it was previously 80%. We analyzed all of these markets to ensure that UOptimal could be safely increased, allowing enough of a buffer to process liquidations.
Deploy an Ethena Aave V3 Instance
We provided recommendations for a new Aave instance that will contain sUSDe and USDe as its primary collateral assets. This included providing recommendations for FRAX and pyUSD, as well as assessing USDe and sUSDe’s current utilization.
- Over the course of the month, we published the following proposals for risk parameter updates:
- Additionally, we provided analysis regarding the following proposals and discussions:
What’s Next
In the coming months, the Chaos team will continue its focus on the following areas:
- GHO: ongoing recommendations, including updating parameters for GHO on Arbitrum.
- Continuation of the V2 risk parameter updates to gradually reduce capital efficiency across V2 collateral assets.
- Continuous optimization of risk parameters on all V3 deployments.
- Further updates on the development of Chaos Labs Risk Oracles.
- Analysis and parameter recommendations for new assets and markets.
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