LlamaRisk supports the steps to commence the implementation of a slope2 risk oracle. The proposed time-based, convex response to high utilization is a more sophisticated approach than the current static model. While we are supportive of the overall direction, we would like to offer two suggestions to refine the implementation process.
The proposal suggests a maximum absolute change of 4% every 8 hours. Although the system has been backtested, as discussed in a previous analysis, it remains to be seen how borrower elasticity will change in reaction to the increments, especially during significant market stress. To ensure the oracle can respond decisively when needed, we recommend exploring a more flexible adjustment capacity, in the range of 6-8% every 8 hours. This would give the model more latitude to restore market equilibrium efficiently.
Moreover, we believe a phased rollout would be valuable for clarity and to de-risk the deployment. We suggest starting with a targeted subset of markets, particularly reserves that have historically been more prone to high utilization, such as the USDT, WETH, or USDe markets on Aave Core. This approach would provide an opportunity to test the system’s performance at scale in a live environment, allowing to gather crucial insights before expanding the oracle’s coverage to all proposed markets.
Despite these suggestions, we welcome this change. We also acknowledge that in any unforeseen edge cases, the general Risk Steward can intervene to adjust rates if the market situation becomes undesirable, providing a reliable backstop for the system.
Disclaimer
This review was independently prepared by LlamaRisk, a DeFi risk service provider funded in part by the Aave DAO. LlamaRisk is not directly affiliated with the protocol(s) reviewed in this assessment and did not receive any compensation from the protocol(s) or their affiliated entities for this work.
The information provided should not be construed as legal, financial, tax, or professional advice.