Chaos Labs - Risk & Simulation Platform Proposal

[omergoldberg]

Hi @eboado, thank you for the thoughtful feedback. I will address the points below. A majority of the proposal focuses on servicing new product areas and features such as AAVE v3 and the upcoming GHO launch. We’ll begin by elaborating on these areas. Subsequently, we’ll discuss full-time headcount, areas of overlap, and how these will benefit AAVE.

• v3 Risk Management
  • At the time of drafting this proposal, it has been 6+ months since the launch of AAVE v3 across 6 different L2s and side-chains. Since launch, the community has not seen or received any significant tooling or solutions for risk management in v3 despite billions of dollars across supply and borrow markets. v3 was the main motivator behind initial conversations with the AAVE risk team and the reasoning for focusing on building the AAVE v3 Risk application first. v3 introduces a suite of new features and functionality such as e-mode, isolation mode, portals, and multi-chain deployments. While all of these are exciting and innovative they also introduce new risk vectors which require analysis, modeling, tooling, and monitoring. We look forward to collaborating closely with the AAVE community and ensuring that the DeFi Risk Management advancements are on par with protocol development innovation.
• GHO
  • Another pillar of early discussions with the risk team is the upcoming GHO launch. While it’s not live yet there is still a significant amount of work leading up to launch. Our simulations, agents, and scenarios integrate directly with smart contracts. Therefore, the earlier we start instrumenting GHO the earlier we can provide valuable feedback. This feedback includes analysis of economic design, initial launch parameter settings, risk and analytics dashboards, and monitoring. Risk tooling and data analytics should be used during development to ensure that significant architectural decisions aren’t made that introduce technical debt that is hard to revert while introducing protocol risk. GHO is aiming to be a cutting-edge, leading decentralized stablecoin. In our opinion, providing tooling and analysis post-launch behooves the gravity and ambition of this goal. It puts the risk team at a disadvantage where they need to play catch up instead of being at the forefront of analytics, high-quality vetted data, and risk management. For these reasons, it is our opinion that GHO-related analysis and work should start during the testing and development phase. The aim is to avoid a “test in production” approach while giving risk a voice during development and testing. We should have the community and protocol equipped and instrumented with state-of-the-art, customized, risk, analytics, and data tooling to ensure a smooth launch and increase confidence in early investors, institutions, market makers, and liquidity providers.
• Asset Listing Portal
  • The asset listing portal for AAVE will be materially different from dYdX, both in the data provided and the platform integration. dYdX v3 is not fully on-chain, nor does the protocol take custody/liquidation risk of assets on-chain. The interface will be similar, but the underlying infrastructure and tooling (analysis, simulations, data, etc.) will be rebuilt from scratch for AAVE.
• Vendor Dependency
  • Our goal is to engage the community and increasingly become a platform for community engagement with regard to risk vs. a consultant solely providing pointed recommendations.
  • As the AAVE dedicated simulation engine expands and we engage the community in agent and scenario development, all of that code will be open-source for developers to use in their own testing environments
    • Since all on-chain Chaos simulations run on EVM compatible mainnet forks all agent and scenario implementations are in Solidity or Javascript. Therefore, it is not tied to any Chaos-specific language or platform and can be reused in Hardhat, Foundry, etc.
• Dedicated Headcount - Full-Time AAVE Contributors
  • The Chaos team is ready to commit 4-6 full-time Chaos engineers and data scientists to the AAVE community for the course of the engagement. To the extent of my knowledge, we are the first risk vendor to make this commitment. The Chaos technical team is world-class, hailing from companies such as Google, Meta, Instagram, Apple, Amazon, Microsoft, and more. With the amount of innovation happening within AAVE and anticipated product launches, this will be a great boost to the productivity and bandwidth of the AAVE risk team.
    • The dedicated headcount and close collaboration with the AAVE risk team and community of contributors will allow us to tackle this ambitious scope. Additionally, a team of full-time contributors will allow for flexibility as we approach new product launches.
• Broader Scope
  • While the proposal is overall thorough and clearly identifies several areas of focus and responsibility we are purposely leaving a portion of it open to community requests. To be clear - we are viewing this as a partnership and full-time AAVE contributor role. As builders, we understand that priorities are dynamic, especially in a community such as AAVE which is continuously pushing the envelope and level of innovation. We are taking this opportunity to declare - there is no risk-related task that we will be unwilling to contribute to. Community priorities may shift over the next 12 months and this agreement doesn’t “only cover v2 / v3 or GHO”. We’re team players and willing to contribute wherever we are asked to and excited to deliver impact in any way that the community deems valuable. A good example of this is how we began building the v3 Risk application and quickly realized that the data was not valid. We then progressed to research, identify and fix the problem. This is not an obvious reaction for a typical Risk vendor. However, it is part of the Chaos Core Ethos. Nothing is someone else’s problem. We’re staffed, willing, and able to tackle any technical issues. We hope this attitude and view is something that the community will benefit from.
• Areas of Overlap
  • For areas of overlap, our opinion is that multiple risk vendors are a feature, not a bug. AAVE is a best-in-class borrowing protocol, currently managing 10 billion in TVL. The benefits of robust risk management cannot be overstated. The DAO can benefit from multiple vendors conducting independent and collaborative research. Underlying differences in technology will result in analysis drift and varied results and recommendations. This will allow the community to compare results, conduct discussions, and ultimately make informed decisions. We look forward to facilitating and driving these discussions on the forums (async) in conjunction with the monthly community risk calls proposed above (a specific ask from community conversations about this proposal). Additionally, relying on a single vendor creates a clear centralization risk. A single bug or misjudgment in recommendations can have catastrophic consequences. In traditional risk and finance, the best practice is to source multiple vendors with different methodologies and risk assessments. These are then consolidated and referenced to drive discussions and ensure that there is a holistic analysis.
• Access to the Chaos Platform
  • Based on conversations we have had to date, this was something that was of great interest and something we are eager to continue opening up to the Aave team/community on a white-listed basis. The team provided by Chaos will be the primary “Aave contributors” utilizing this capacity at the onset of the engagement, but we wanted to make it clear that this was an option for other teams as necessary.

We’ll be releasing additional AAVE-related deliverables over the coming days. This should give more insight into the quality and speed of execution while serving as a preview of the value that we can drive for the AAVE community. I’ll update and link to those on this thread as they are released.