April 2025
This update highlights Chaos Labs’ activities and proposals in April.
Highlights
Staking Penalties on Ethereum’s Consensus Layer: Implications for wstETH and Other LSTs and LRTs
We conducted in-depth research on the impact of Ethereum consensus-layer slashing and penalties, with a focus on Aave’s exposure through LSTs and LRTs. We considered the changes in risk to the protocol before and after Pectra, which alters how validator balances and slashing penalties are handled. This includes changes to the initial slashing penalty and an improvement to the correlation penalty. We found that Lido’s current approach to the Pectra upgrade is focused on ensuring full compatibility, rather than immediately adopting new features. We recommended a variety of mitigation measures that can reduce staking risks, including client diversity and a preference for minority clients. Finally, we modeled a variety of stress scenarios, from a low-scale isolated slashing event to a CL minority bug with slashing. We found that most events would result in manageable losses for Aave, while the severe events are highly unlikely. This analysis ultimately acted as the basis of a more capital-efficient parameterization of wstETH within the Aave Protocol.
SVR Dashboard
We released a new dashboard detailing the use of SVR on Aave. This includes a breakdown of the number of liquidations and the profit for Aave.
It also includes a number of charts showing a variety of metrics, including recapture rate by asset, showing the top five and bottom five.
Finally, it includes a granular listing of all SVR liquidation events on Aave, providing greater insight into these events.
The dashboard can be found here.
PT Token Listings
We recommended the listing of Principal Tokens (PTs) on Aave and launched our risk oracle to enable continuous risk parameterization for these assets. This initiative aligns with our Principal Token Risk Oracle Framework and leverages the dynamic linear discount rate oracle implementation, as detailed in our methodology here and here. Since their listing, PTs have seen strong demand.
New Deployments
We provided an update to our recommendation to deploy Aave V3 on Mantle, maintaining a cautious stance on asset listings due to the network’s relatively volatile liquidity. However, we were able to provide preliminary listing recommendations for WETH, USDC, USDT, and USDe. We also recommended a new deployment on Aptos, providing an overview of network activity, tooling, DEXes, and available tokens, and were able to provide listing recommendations because the network is already established.
Risk Oracles
Supply and Borrow Cap Oracles
The supply and borrow cap risk oracle on Arbitrum continued to function flawlessly, this month making incremental changes to DAI’s supply and borrow caps, while making continued reductions to wstETH and WBTC’s borrow caps.
We deployed cap oracles on Avalanche and Base this month, leading to reductions in DAI.e’s caps on Avalanche and an increase in AUSD’s supply cap. There were fewer changes on Base, where the oracle recommended changes to cbETH’s borrow cap and increases in EURC’s caps.
PT Risk Oracle
The newly listed assets utilizing our PT risk oracle, described above, have reached $485M in combined TVL shortly after listing.
Edge UI
Forum Activity
- We published the following proposals and updates, including risk parameter updates:
- Chaos Labs Risk Stewards - Increase Supply and Borrow Caps on Aave V3 - 04.03.25
- Chaos Labs Risk Stewards - Increase Supply and Borrow Caps on Aave V3 - 04.05.25
- Chaos Labs Risk Report: Insights from Recent Market Events - 04/07/25
- Chaos Labs Risk Stewards - Increase Supply Caps and Debt Ceiling on Aave V3 - 04.07.25
- Chaos Labs Risk Stewards - Decrease Supply and Borrow Caps on Aave V3 - 04.09.25
- Chaos Labs Risk Stewards - Increase Supply and Borrow Caps on Aave V3 - 04.10.25
- [ARFC] Further Deprecate sUSD on Aave V3 Optimism
- Chaos Labs Risk Stewards - Increase Supply Caps on Aave V3 - 04.13.25
- Chaos Labs Risk Stewards - Adjust Supply and Borrow Caps on Aave V3 - 04.15.25
- Chaos Labs Risk Stewards - Decrease ZK Supply Cap and Debt Ceiling on Aave V3 ZkSync - 04.15.25
- Update on FDUSD Uncertainty and Relevant Guardian Activity
- Chaos Labs Risk Stewards - Adjust Supply and Borrow Caps on Aave V3 - 04.17.25
- Staking Penalties on Ethereum’s Consensus Layer: Implications for wstETH and Other LSTs and LRTs
- [Direct to AIP] Remove USDe Debt Ceiling and Introduce USDe Stablecoins E-mode
- Chaos Labs Risk Stewards - Increase Supply and Borrow Caps on Aave V3 - 04.22.25
- Chaos Labs Risk Stewards - Increase Supply and Borrow Caps on Aave V3 - 04.23.25
- [ARFC] Interest Rate Curve Risk Oracle
- Chaos Labs Risk Stewards - Increase Supply and Borrow Caps on Aave V3 - 04.30.25
- Additionally, we provided analysis regarding the following proposals and discussions:
- [ARFC] Onboard Pendle PT tokens to Aave V3 Core Instance
- [ARFC] Onboard lisUSD to Aave V3 BNB Instance
- [ARFC] Update USDS Borrow Rate
- [ARFC] Onboard sUSDS to Aave V3 Base Instance
- [ARFC] Add EURC to Avalanche V3 Instance
- ARFC: Onboarding wETH to Aave V3 Celo Instance
- [ARFC] Deploy Aave v3 on Mantle
- [ARFC] Aave <> Bored Ghosts Developing. Phase 5
- [ARFC] Onboard USDtb to Aave v3 Core Instance
- [ARFC] LRT and wstETH Unification
- [ARFC] Onboard sUSDe July expiry PT tokens on Aave V3 Core Instance
- [ARFC] Onboard eUSDe to Aave v3 Core Instance
- [ARFC] Onboard eUSDe PT Tokens to Aave v3 Core Instance
- [ARFC] Add EURC to Aave V3 Core Instance
- [ARFC] Add EURC to Sonic V3 Instance
- [ARFC] Add EURe to Linea V3 Instance
- [ARFC] Aave Umbrella - activation
- [ARFC] Add FBTC to Aave v3 Main Market on Ethereum
- [ARFC] Onboard MNT, mETH, cmETH as collateral assets on Aave v3 Mantle Instance
- [ARFC] Aave V3 Deployment on Aptos Mainnet
- Risk Stewards - USDS Borrow Rate Update Prime Instance
What’s Next
In the coming months, the Chaos team will continue its focus on the following areas:
- Supply and Borrow Cap Risk Oracle integration on additional Chains leveraging Edge infrastructure.
- Continuous monitoring of SVR and associated parameterization
- Pendle Dynamic Risk Oracle for each PT asset deployment
- Risk Oracle integration for automated interest rate curve adjustments in response to demand
- Circuit Breaker for LSTs and LRTs
- Umbrella parameterization and methodology
- GHO: ongoing recommendations, including a comprehensive quantitative framework for the GHO savings rate.
- Continuous optimization of risk parameters on all V3 deployments.
- Parameterization for new Liquid E-Modes.
- Analysis and parameter recommendations for new assets and markets.
Interest Rate Curve Risk Oracle
While continuing the rollout of the Supply and Borrow Cap Risk Oracles, this month, we presented our methodology for an Interest Rate Curve Risk Oracle. This methodology utilizes demand models to drive protocol optimization. The current method of stablecoin IR updates requires considerable operational effort, with manually created transactions for more than 60 stablecoin markets on 16 deployments. The risk oracle will be able to perform more granular and frequent updates, maintaining a higher utilization for the stablecoin markets on which it operates. As shown below, this would lead to higher protocol revenue.
