Summary
LlamaRisk supports the proposal by Chaos Labs to adjust the Oracle configurations for both MKR and USDtb.
For MKR, as liquidity migrates to SKY, the legacy MKR feed has become susceptible to volatility and manipulation. Transitioning to a derived price based on SKY (factoring in the conversion rate and penalty) provides a more robust and accurate valuation of the underlying asset.
For USDtb, we support hardcoding the price to 1 USD. Given that USDtb is not currently enabled as collateral, the primary risk stems from liability valuation. Transient downward volatility in the oracle (caused by thin liquidity) forces the protocol to mark liabilities down. Therefore, hardcoding the price to $1 is a conservative approach that ensures liabilities remain fully valued. However, it is important to highlight that the root cause of these oracle dislocations is extremely low secondary market liquidity. To make Aave more defensive, LlamaRisk recommends lowering the borrow caps for USDtb . This will prevent additional exposure while market depth is insufficient to support large-scale liquidations or exits.
MKR Specific Considerations
We support the transition to a derived MKR price. As the transition from MKR to SKY continues, the MKR token effectively becomes a claim on SKY (subject to conversion mechanics). Relying on the deeper SKY liquidity ensures the oracle reflects the true economic value of the collateral.
The proposed formula calculates the MKR price as:
(Where 0.94 accounts for the 6% conversion penalty currently in effect).
The chart below compares the current Spot MKR market price against the Derived SKY price, illustrating that the divergence of the scaled MKR price (without the 6% discount) has been fluctuating, with the discount of MKR secondary market price vs. MKR-to-SKY exchange rate trending between 1% and 3%:
Source: LlamaRisk, January 22, 2026
The proposed 6% discount would cover the observed discount dislocations, although it is important to realign the discount rate continuously. We will also monitor for potential rule changes in the handling of MKR to SKY conversions as they are defined by Sky governance.
USDtb Specific Comparisons
As noted in the summary, the volatility in the USDtb feed is a symptom of thin market depth rather than fundamental de-pegging. Therefore, it is important to analyze the excessiveness of the underlying issue.
The current utilization of the USDtb pool is heavily skewed by single-party deposits. Ethena remains the dominant supplier (98% of total USDtb supply on Aave Core), creating a unique risk profile where the “market” on Aave is not reflective of broad adoption but rather protocol-level integration.
Source: Etherscan, January 22, 2026
The $1 hardcode is evidenced by the fragility of the secondary markets. Overall, there is 12.2M USDtb deposited in Curve’s USDtb/USDC pool, as well as a small part of 2M USDtb deposited on Fluid. Ethena’s Reserve Fund is the sole depositor in the USDtb/USDC pool, making liquidity extremely concentrated. Current liquidity depth is insufficient to absorb trade sizes of more than $10M without significant price impact, which creates the noise seen in the current oracle feed.
Source: Curve Finance, January 22, 2026
Given this liquidity profile, hardcoding the price prevents oracle upticks from affecting borrower solvency. Nonetheless, given that this instability stems from low liquidity, current USDtb borrow cap (240M), which is more than 8 times larger than the available liquidity TVL (including 10M USD primary redemption liquidity), should be revised down.
Recommendation
In addition to the changes listed above, we recommend the borrow cap for USDtb to be reduced to 100M. This change will be executed by the Risk Stewards in the subsequent batch of parameter changes as agreed with Chaos Labs.
Disclaimer
This review was independently prepared by LlamaRisk, a community-led decentralized organization funded partly by the Aave DAO. LlamaRisk serves as Ethena’s Risk Committee member and an independent attestor of Ethena’s PoR solution. LlamaRisk did not receive compensation from the protocol(s) or their affiliated entities for this work. The information should not be construed as legal, financial, tax, or professional advice.