December 2025
This update highlights Chaos Labs’ activities and proposals in December.
Highlights
Enhancing Market Granularity in Aave v3.6
This month, we introduced a Direct-to-AIP proposal leveraging the configurability improvements in Aave v3.6 to tighten risk isolation and make reserve roles substantially more explicit. Historically, Aave v3’s pre-3.6 configuration model coupled base-market settings with eMode behavior, meaning that assets could not be cleanly scoped to “eMode-only” roles. In practice, this forced workarounds such as setting very small but nonzero collateral parameters or leaving assets borrowable in the general pool despite their demand being almost entirely eMode-driven, expanding the protocol’s hypothetical exposure surface.
With v3.6 introducing per-eMode configurability, including selective LTV0 signaling and more granular participation controls, the proposal specifies a framework to separate the conservative “main pool” from higher-efficiency, correlation-scoped eModes. Concretely, the approach introduces LTV0 for assets not intended to serve as collateral outside eModes, restricts borrowability for assets whose borrowing demand is eMode-specific, and enforces exclusive eMode participation where appropriate. This improves the clarity of which assets are meant to operate as general-purpose collateral/borrow markets versus those intended for tightly bounded, high-correlation environments such as LST/LRT and stablecoin-focused strategies.
Onboarding Strata srUSDe PT tokens
In response to the ARFC proposing the listing of srUSDe PT tokens on Aave V3 Ethereum Core, we conducted an in-depth analysis of Strata, a structured yield protocol built on top of Ethena’s staked USDe. Strata introduces a two-tranche system, with srUSDe as the senior tranche and jrUSDe as the junior tranche, separating yield and risk exposure into differentiated instruments. This structure is governed by a Dynamic Yield Split mechanism, which allocates realized yield between the tranches using a benchmark rate derived from Aave stablecoin supply yields, a TVL ratio across tranches, and exogenously set risk premium parameters.
The analysis highlights that, while srUSDe itself is structurally conservative, the implied yield of PT-srUSDe can exceed srUSDe’s realized yield meaningfully due to incentives. Under such conditions, a listed srUSDe PT could attract substantial stablecoin borrowing demand via leveraged looping strategies, with user behavior driven primarily by the PT market’s implied rate rather than by incremental utility of srUSDe as a standalone collateral asset.
Risk Oracles
Pendle PT Risk Oracle
Risk oracle coverage for Pendle PT assets continued to scale, with PT-related updates representing the highest activity category this month. In total, Pendle Token risk oracles executed 144 updates, with activity concentrated on Ethereum and Plasma. Ethereum accounted for 75 updates and Plasma for 69 updates, reflecting continued demand for PT markets across both the Core and Plasma ecosystems and the need for continuous recalibration as time-to-maturity declines and implied yields evolve.
Supply and Borrow Cap Oracles
Supply and borrow cap risk oracles remained an active mechanism for maintaining market resilience and operational efficiency, executing 60 total updates across multiple chains. The distribution of updates suggests that cap automation is now functioning as an ecosystem-wide liquidity management layer rather than being concentrated on a single deployment. Avalanche was the most active chain for cap updates with 22, followed by Optimism with 12 and Base with 10, while Polygon recorded 8, BNB recorded 6, and Arbitrum recorded 2.
Variable Rate Slope 2 Oracle
The Variable Rate Slope 2 oracle executed 22 updates during December, entirely on Linea. The activity highlights continued expansion of interest-rate automation as a distinct risk-oracle vertical. Slope 2 automation is particularly relevant during periods of demand shocks and liquidity rebalancing, where systematic rate adaptation can reduce governance overhead while maintaining predictable guardrails that preserve solvency and market function.
Forum Activity
We published the following proposals, updates, and analyses, including risk parameter updates:
- Chaos Labs Risk Stewards - Increase Supply and Borrow Caps on Aave V3 - 12.01.25
- Chaos Labs Risk Stewards - Increase Supply and Borrow Caps on Aave V3 - 12.04.25
- Chaos Labs Risk Stewards - Increase Supply and Borrow Caps on Aave V3 - 12.08.25
- Chaos Labs Risk Stewards - Increase Supply and Borrow Caps on Aave V3 - 12.19.25
- Chaos Labs Risk Stewards - Stablecoins Interest Rate Adjustment on Aave V3 - 31.12.25
- [Direct-to-AIP] Enhancing Market Granularity in Aave v3.6: Restricting Borrowability and Collateralization Outside of Liquid eModes
- [Direct to AIP] Ethena February PTs: caps and E-Modes adjustments
- [Direct to AIP] Alter mUSD Oracle Price Implementation
Additionally, we provided analysis regarding the following proposals and discussions:
- [ARFC] Onboard frxUSD to Aave v3 Core Instance on Ethereum
- [ARFC] Onboard Strata srUSDe PT tokens to V3 Core Instance
- [ARFC] Remove USDS as collateral and increase RF across all Aave instances
- Direct-to-AIP: Onboard syrupUSDC to Aave V3 Base Instance
- [ARFC] Onboard wstLINK to Aave V3 Core Instance
- [Direct to AIP] Onboard USDe & sUSDe April expiry PT tokens on Aave V3 Plasma Instance
- [Direct to AIP] Add WETH to the wrsETH/wstETH E-Mode on Aave V3 Base 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 across additional chains leveraging Edge infrastructure
- Pendle Dynamic Risk Oracle deployment for each PT asset
- CAPO Risk Oracle integration
- Preparation for the launch of Aave V4