Chaos Labs - Monthly Community Update

Governance
37

January 2026

This update highlights Chaos Labs’ activities and proposals in January.

Highlights

Introduction of Segregated Bluechip Collateral E-Modes on Aave v3

We published an analysis proposing the introduction of segregated (non-rehypothecated) bluechip collateral E-Modes for WETH, cbBTC, and WBTC on Aave v3. The objective is to offer users an opt-in borrowing environment where supplied collateral is escrowed and never lent out, eliminating liquidity and liquidation execution risk arising from rehypothecation, removing borrower exposure to counterparty default risk, and enabling more competitive risk parameterization relative to pooled markets.

The proposal frames segregated collateral as a complementary product line alongside Aave’s dominant pooled model. While pooled markets remain the protocol’s core growth engine, segregated collateral designs have grown into a meaningful onchain credit segment, particularly for bluechip wrappers, where borrowers often prioritize predictable liquidity, guaranteed collateral availability at repayment, and reduced cross-user exposure over maximizing supply yield. With the flexibility introduced in v3.6, the proposal outlines a practical path to achieve factual segregation through wrapper assets listed as non-borrowable collateral and accessible via dedicated stablecoin E-Modes.

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A key design element is stricter isolation at the E-Mode level to prevent cross-margin behavior. Under the proposed approach, collateral assets outside a given Segregated Bluechip Stablecoin E-Mode are assigned an effective LTV of 0 while that E-Mode is active, preventing users from combining non-whitelisted collateral with segregated collateral to improve borrowing power. This preserves the intended properties of segregation while allowing borrowers to tap existing deep stablecoin reserves on each instance.

Umbrella Risk Oracles

We introduced a framework for dynamically calibrating key parameters of the Aave Umbrella system via autonomous Risk Oracles. Umbrella’s effectiveness depends on sustaining coherent incentives and coverage targets as reserve conditions evolve, yet static, nominal parameterization can create procyclical distortions, over-incentivizing in low-demand regimes while under-incentivizing when outstanding debt and tail risk expand.

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The proposed approach reframes Umbrella configuration as a reserve-level pricing problem rather than a fixed emissions schedule. Coverage is expressed as a thickness ratio, and incentive intensity is expressed as a fraction of reserve revenue, creating a scale-free mapping from observable reserve state to implied incremental yield. This preserves a clear accounting interpretation and enables consistent parameter movement across demand regimes while minimizing reward leakage.

Risk Oracles, acting as autonomous agents, monitor reserve dynamics off-chain and reparameterize the system accordingly. This reduces operational overhead, improves responsiveness, and aligns the coverage market’s pricing with the underlying reserve environment.

Aave v4: A Design Framework for Pooled and Isolated Bluechip Collateral Markets

We published a structured framework to guide governance discussions on how bluechip collateral should be configured in Aave v4, focusing specifically on WETH, WBTC, and cbBTC. The analysis explores the expanded design space introduced by v4’s hub-and-spoke architecture and compares market configurations spanning fully pooled environments to fully isolated collateral systems where collateral is never rehypothecated.

The paper outlines six design patterns, ranging from a pooled Core Spoke to increasingly segmented and isolated bluechip stablecoin configurations. It highlights the core tradeoffs across borrowing power, liquidity risk, liquidation liquidity assurance, parameter flexibility, and market fragmentation. As rehypothecation and cross-asset dependencies are removed, borrowing power and parameter flexibility increase, but some designs introduce stablecoin liquidity fragmentation and additional operational complexity.

Rather than advocating for a single configuration, the recommendation is a layered structure that runs multiple designs in parallel to serve heterogeneous borrower and supplier preferences. This includes maintaining a pooled Core Spoke for maximum composability, introducing segmented bluechip stablecoin spokes within the Core Hub to improve parameterization without fragmenting liquidity, and deploying an isolated bluechip hub/spoke path for users who prioritize guaranteed collateral availability and elimination of rehypothecation risk. This framework is intended to anchor a focused technical discussion before extending the methodology to a broader asset set.

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Risk Oracles

Variable Rate Slope 2 Oracle

In January, the Variable Rate Slope 2 Risk Oracle executed 8 updates across Ethereum and Linea. While lower in absolute count than other oracle categories, these updates reflect continued progress toward demand-aware rate automation for systemically important markets, reducing the need for frequent manual governance intervention during shifting utilization regimes.

Supply and Borrow Cap Oracle

The supply and borrow cap risk oracles executed 33 updates across seven deployments, continuing to provide responsive liquidity management as utilization and demand shifted across markets. Overall, this distribution is consistent with cap automation scaling across the multi-chain footprint, where updates cluster on the most actively used markets and where utilization-driven adjustments have the greatest impact on user experience and protocol risk.

PT Risk Oracle

The PT Risk Oracle remained the most active automation system in January, executing 159 updates across Ethereum and Plasma. This reflects continued growth and operational intensity of PT markets, where time-to-maturity dynamics require frequent, systematic recalibration of risk parameters to keep collateral settings aligned with evolving downside risk, liquidity conditions, and maturity proximity.

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Forum Activity

We published the following proposals, updates, and analyses, including 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:

  • 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
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