Chaos Labs - Monthly Community Update

Governance
16

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.

Untitled - 2024-05-01T182939.401

  • 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.

Screenshot 2024-04-04 at 16.29.38

  • 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.

Untitled - 2024-05-01T183036.418

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.
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