Chaos Labs - Monthly Community Update

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

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.