[Direct-to-AIP] Aave <> Chainlink SVR v1 activation. Phase 2

Development
1

Simple summary

Proposal for activating more Chainlink SVR feeds on Aave Ethereum, given the successful activation of the first batch after the Phase 1 proposal, as discussed in the previous governance post.



Motivation

In proposal 274, a first set of SVR feeds was enabled, targeting initially low-size BTC-correlated assets to plug into production the BTC/USD SVR feed, and more volatile assets like AAVE and LINK.
Over the recent weeks, the oracles have been monitored, and as expected, the system has been working flawlessly, with no relevant deviations from the previous non-SVR feeds, updates arriving perfectly in time, and liquidations being correctly processed.
Therefore, to progress to the goal of having all assets on Ethereum covered by SVR feeds, this Phase 2 activation proposes expansion in 2 additional directions: all other BTC-correlated assets on Aave v3 Ethereum Core, and all ETH-correlated assets on v3 Prime, this last before expanding to all ETH-correlated assets on v3 Core.

This proposal is done via Direct-to-AIP, as no fundamental aspect of Aave <> SVR changes, only implies a pre-approved expansion to new assets.



Specification

In terms of high-level specification, this new Phase follows the same architecture as what was described in the initial SVR Phase 1 post.

Regarding the assets proposed, the full list and rationale are the following.


Aave v3 Ethereum Core

  • WBTC. Currently, WBTC uses a composed feed of WBTC/BTC (Chainlink) + BTC/USD (Chainlink) on Core. On this SVR activation phase, the underlying BTC/USD feed will be swapped to SVR, more precisely to exactly the same feed already used in production for lBTC and tBTC in Phase 1.
  • cbBTC. Currently, using BTC/USD (Chainlink). Similar to WBTC, the BTC/USD non-SVR feed will be replaced by the BTC/USD SVR already used in production for lBTC and tBTC.
  • eBTC. Currently using a CAPO feed, composing eBTC/BTC exchange rate from EtherFi + BTC/USD (Chainlink). Similarly to WBTC and cbBTC, the BTC/USD feed will be replaced with the SVR version already used in production for other assets.

The rationale of this sub-set of new assets is:

  • Cover all BTC-correlated currently listed, given that the BTC/USD feed has been in production for already 1 month without any problem.
  • Not include any ETH-correlated assets yet, until the ETH/USD is plugged first into a smaller pool like v3 Ethereum Prime.

Aave v3 Ethereum Prime

  • WETH. Currently using the ETH/USD (Chainlink) feed, to be replaced by the ETH/USD SVR version.
  • wstETH. Currently using a CAPO feed, composing wstETH/stETH exchange rate + ETH/USD (Chainlink). In this SVR activation phase, the ETH/USD underlying feed will be replaced by the ETH/USD SVR version.
  • ezETH. Currently using a CAPO feed, composing ezETH/ETH exchange rate + ETH/USD (Chainlink). Similar to wstETH, in this SVR activation phase, the ETH/USD underlying feed will be replaced by the ETH/USD SVR version.
  • rsETH. Currently using a CAPO feed, composing the rsETH/ETH exchange rate + ETH/USD (Chainlink). Similar to wstETH, in this SVR activation phase, the ETH/USD underlying feed will be replaced by the ETH/USD SVR version.

The rationale of this sub-set of new assets is:

  • Before enabling ETH on all assets of both Core and Prime, we think it makes sense to enable it in a subset of them.
  • Same time, it is always cleaner to enable all correlated assets using partially the same underlying feed, as synchronisation becomes fully perfect. Prime allows do that, without forcing the activation to be partial on Core.


Same as on Phase 1, the SVROracleSteward contract active for Core will receive support for the new assets, and a separate instance will be deployed for Prime, in order to have redundant protection and be able to swap to non-SVR if any very edge scenario arises.



Next steps

After some days in this forum and while we finish our internal security review procedures, we will proceed with the creation of an on-chain AIP of Aave <> Chainlink SVR Phase 2.

6 Likes
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Very much in favour! We need to expand the assets covered by SVR to maximise revenue for the DAO and a sufficient amount of time has passed in Phase 1 to assess any faults or issues.

1 Like
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Given the success of the initial roll out & @bgdlabs monitoring report I see no reason not to progress and garner another income stream for the Dao.

1 Like
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LlamaRisk supports Phase 2 of SVR Activation. We support BGD’s recommendation of allowing BTC-correlated assets on the Core instance and ETH-correlated assets on the Prime instance as ideal candidates for the continued rollout of SVR.

Additionally, we propose including USDC as a new SVR asset on Prime. Under normal conditions, most liquidations result from volatile asset price changes. However, a stablecoin price update may occur simultaneously with a volatile asset price update in less frequent instances. In such cases, searchers can participate in both auctions, thereby increasing the number of liquidation paths and potential recapture. We propose testing this scenario in a pilot market over an extended period to understand its likelihood and overall impact better. This change would not add additional constraints to the system and is considered a risk-measured approach.

Based on SVR’s overall performance, it is necessary to fully expand its coverage to harness its potential. Initially, a limited number of searchers acted as a bottleneck, but significant efforts are underway to onboard more searchers. Another important point is the interaction between different assets in a loan. For example, a change in a non-SVR asset’s price can trigger a liquidation of an asset that uses an SVR feed. This highlights the need to scale the SVR deployment before we can truly observe and measure its full impact.

Regarding specific asset insights, our analysis indicates that for WETH, the borrows are primarily LST looping, which results in minimal liquidation risk. On the collateral side, most assets are stablecoins, implying a one-sided liquidation risk if WETH declines in value. For WBTC, a similar risk assessment applies—only a portion of the borrows are in BTC-correlated E-Mode, while a large share of the borrows is collateralized by wstETH and WETH.

Additionally, we have analyzed Aave V3 assets with the highest Oracle-Extractable-Value (OEV) potential—tokens whose price declines are most likely to generate significant liquidation bonuses using Chainlink’s SVR Oracle. This analysis, which accounts for liquidation sensitivity and historical price volatility, is based on two years of high-frequency Chainlink price data for 38 assets. The detailed findings of our research are provided below.

Oracle-Extractable-Value (OEV) Potential in Aave V3 Assets

We calculated each asset’s 99% daily Value-at-Risk (VaR99) to determine the worst expected loss under normal market conditions over a single day, with 99% confidence. Building on this, we developed two composite risk scores—lin_res and exp_res—to further assess each asset’s exposure to liquidation events. These scores are derived by simulating progressive downside price shocks and measuring the resulting liquidation values. In simple terms:

  • lin_res captures the liquidity risk using a linear model, estimating how much liquidation value builds up proportionally as the asset price declines.
  • exp_res uses an exponential model, which accounts for scenarios where the liquidation risk increases at an accelerating rate as the asset price falls further.

Both scores integrate the asset’s liquidation sensitivity (i.e., how quickly it triggers liquidations as prices drop) and historical price volatility, helping us prioritize assets likely to generate significant liquidation events in stressful market conditions.****

Key Findings

  • cbBTC dominates with a significantly higher score than any other asset.
  • WBTC ranks second, followed by WETH.
  • Liquid-staking derivatives (weETH and wstETH) occupy the next tier.
  • Mid-cap governance tokens (LINK, AAVE, UNI, LDO) show lower but still notable scores.

Bitcoin and Ethereum-backed collateral represent the richest OEV opportunity, with cbBTC alone accounting for most extractable value under stress scenarios.

We recommend prioritizing assets with high lin_res and exp_res scores for further SVR development, as these assets exhibit both strong liquidation sensitivity (with substantial liquidations triggered per percentage price drop) and high historical volatility. Each asset’s VaR99 values (called shock) provide valuable context for understanding its potential to generate liquidation value.

Detailed Results

The table below summarizes the computed metrics for assets where the simulation resulted in non-zero liquidatable values, with assets ranked by lin_res (in descending order).

asset lin_slope exp_slope shock volatility lin_res exp_res
cbBTC 616,148.91 5.24 6.05 0.027036 16,657.9384 0.1416
WBTC 78,538.71 4.04 6.27 0.025373 1,992.7982 0.1025
WETH 34,866.54 2.82 8.77 0.032608 1,136.9296 0.0921
weETH 21,077.91 2.43 9.75 0.037394 788.1815 0.0908
wstETH 18,668.95 2.62 8.76 0.032591 608.4372 0.0855
LINK 2,932.60 1.78 12.14 0.046228 135.5693 0.0823
AAVE 2,479.86 1.82 12.39 0.049288 122.2261 0.0897
UNI 821.14 1.56 13.39 0.050823 41.7329 0.0792
LDO 420.56 1.34 16.23 0.059093 24.8519 0.0793
rETH 109.65 2.06 8.75 0.032606 3.5754 0.0673
rsETH 32.88 2.07 12.40 0.042708 1.4042 0.0886
1INCH 14.06 1.29 11.90 0.046512 0.6540 0.0600

Recommendation

Assets with high scores on lin_res and exp_res are recommended for further SVR adoption since they demonstrate significant sensitivity (with substantial liquidations triggered per percentage price drop) and high historical volatility. The shock values (VaR99) offer an important context for the sensitivity analysis.

Examples

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Disclaimer

This review was independently prepared by LlamaRisk, a community-led decentralized organization 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.

3 Likes
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Following the Direct-to-AIP framework, we have created a proposal for this Aave <> Chainlink SVR Phase 2 activation, including all assets we initially proposed, plus USDC/USD on Aave v3 Ethereum Prime suggested by @LlamaRisk.

Voting will start in approximately 24 hours, participate :ghost:
https://vote.onaave.com/proposal/?proposalId=308

3 Likes