Launch Aave V3 on Metis

[Metis]

Thank you for your thoughtful response. We respect your opinion and point of view, as well as the mentioned concerns associated with current state of L2 infrastructures. These are considerations for each project. However, it’s important to weigh these concerns against the potential benefits of integrating with a diverse and thriving L2 platform with a dedicated team committed to delivering on its vision to support growth within the Web3 economy.

In regards to the Infrastructure, we’ve attached our Developer Docs in this thread and are doing it again here. Our tech will be evaluated by @BGD in the case of a successful Temp Check, precisely to help the community make the most informed decision. In the meantime, we’d be fully open to participate in a governance call and be able to elaborate more on it.

In regards to liquidity, we understand it is a very valid concern. On the other hand, especially during a bear market, Aave and Metis could both benefit from a new integration and new markets to explore and attract new users, volume, and TVL.

In regards to whether the integration is worth the risk or not, security is one of the most important factors in DeFi, if not the most important one. Ironically, for DeFi in L2s, most users end up using 3rd party bridges that don’t have the same security assumptions as rollups, just to avoid the 7-day withdrawal period. Metis is fully aware of this hurdle, and is working hard on implementing zk proofs in 2023. This will reduce the 7 day window to ~4 hours~, giving users a viable alternative through our Canonical bridge, and taking full advantage of Metis and Ethereum underlying security.

We are looking forward to your consideration of voting in favor of the proposal as the potential for Metis team and the ecosystem to succeed and grow over time, and to be a viable partner for AAVE. By voting in favor of the proposal, we can move forward with the next steps of @BGD conducting a technical evaluation on Metis tech and its ecosystem, determining any possible deficiencies and exploring a potential partnership in more detail. Then, the community would be able to make a final decision based on this information.

Thank you for your consideration.

[cypherpunk669]

There’s been great points of discussion raised here in the forum including valid concerns.

I’m a Metis Ambassador, and I can wholeheartedly attest to the determination of the Metis team to provide the adequate infrastructure for enterprise level blockchain infrastructure which includes speedy execution, very low cost txs, and most
Importantly, Grade A network security.

The 2 main concerns raised have been addressed already but I will add my 2 cents here:

1. Data Availability - the concern that Verifiers and independent observers cannot challenge a Sequencer if they don’t post data on MemoLabs is easily addressed by current Metis security implementation against this. If a Sequencer posts data to L1 that cannot be tracked to tx data on MemoLabs then the Sequencer will lose the challenge and face punishment. There is no incentive to not post data on MemoLabs and omission can be easily tracked and determined by Verifiers and independent observers.

2. TVL - the bear market has drained liquidity across the Web3 ecosystem. Metis is no different than any other network who has lower TVL. Métis at one point had ~$1 billion TVL. Currently, the Metis team is integrating crucial DeFi infrastructure projects such as Stargate and Layer 0 to enable cross-chain liquidity. There are valuable DeFi and infrastructure projects integrating Metis every week preparing the foundation for a healthy and sustainable DeFi market that will surely capture much more TVL than there is now. Remember, we are in the deepest of a bear market that was exacerbated by an extreme event as of recent.

Metis is also running the Marathon campaign which incentivizes DeFi usage through rewards. Native DeFi dApps have benefited tremendously through this program and adding AAVE to the Metis ecosystem will be a reciprocally beneficial relationship.

[bgdlabs]

Given the positive outcome of the temperature check of Aave v3 Metis, we will be producing and publishing here on the forum a technical report about the Metis network, during the following days.

This report will focus on infrastructural/technical aspects that directly relate to the Aave protocol, and its goal is to have a transparent opinion from a party engaged with the Aave community, without any external bias.

It is essential to highlight that our report will be neither a mandate for deployment nor a blocker, only extra information for voters to do a more educated choice: the final decision on deployment will need to be taken by the Aave community via Snapshot,

[bgdlabs]

We have published our technical/infrastructural report for Aave <> Metis.

The community is welcomed to comment or ask questions on the thread BGD. Aave <> Metis. Infrastructure/technical evaluation

[dnm]

@Metis can you please share a few words on the next steps? 25 days have passed since the report by bgdlabs.
Are you implementing some of the recommendations inside? What is left to complete? Thank you.
cc @pavel

[ChaosLabs]

Gauntlet and Chaos Labs have collaborated to provide a market risk analysis and recommendations for the deployment of the Metis network. This post is a consolidation of the independent analyses conducted by both teams.
Our main goal is to align with the community on the potential initial assets and recommended caps. This will give the community a sense of the possible market size to discuss and decide on the next steps.
Additionally, Chaos Labs has provided a framework and recommendations for the rest of the risk parameters for community visibility (found at the bottom of this post). Given community support of deploying on Metis, Gauntlet and Chaos Labs will provide final recommendations on the risk parameter configurations.

General Overview

• TVL: $55 million

  • Trending up over the last month

  • $47.5mil 30-day average

    

• Last 45 day bridge activity(dune query)

  

  • Average daily bridge deposits: $309k
  • Average daily bridge withdrawals: $122k
  • Net +$8.4mil bridged to Metis over the last 45 days

  It’s worth noting that there has been a big influx of TVL being bridged onto Metis over the past month, which has also manifested in increased DEX activity ($76mill total DEX volume in Jan 2023 vs. $14-15mill in Dec and Nov 2022). Spike is likely due to the recent LayerZero/Stargate partnership.

Oracles

Has chainlink oracles for eight assets - link

DEXs:

• Hummus Protocol (Platypus fork / stable swap AMM): $13.9mil TVL
• Hermes Protocol (solidly fork): $11.1mil TVL
• NetSwap (uniswap fork): $8.8mil TVL

	Total DEX Volume
Last day	$2.5mil
Last week	$25mil
Last Month (Jan 2023)	$76mil
Current Month (Feb 2023 extrapolated)	$116mil

Hermes Protocol TVL

Hermes Protocol Daily Trading Volume

Hermes Protocol TVL

Hummus Exchange Daily Trading Volume

Top Token Supply

Symbol	Circulating Supply ($)	Net Top 5 Wallets ($)
m.USDC	$24,385,936.71	$5,001,010.57
m.USDT	$14,048,506.44	$995,691.04
m.DAI	$2,992,547.00	$63,410.99
WETH	$5,807,975.05	$1,630,421.02
WBTC	$116,086.74	$15,931.07
METIS	$92,892,164.02	$2,575,283.67

DEX Slippage

Symbol	Cost of 2% DEX Slippage	Cost of 25% DEX Slippage
m.USDC	$2,100,000.00	$3,000,000.00
m.USDT	$2,270,000.00	$3,150,000.00
m.DAI	$1,630,000.00	$2,250,000.00
WETH	$10,080.07	$162,831.90
WBTC	$884.74	$13,934.66
METIS	$23,172.50	$374,325.00

Slippage numbers are taken from Hummus exchange (for stable coins) and Hermes. For m.USDC, m.USDT is used as the target currency.

The general takeaway is that Metis is a relatively low liquidity chain, with the majority of the liquidity coming from stablecoins and its native token METIS. As a point of comparison, a $3mill stablecoin swap incurs 4% slippage on Avalanche and 0.1% slippage on Ethereum.

Preliminary Borrow/Supply Cap Recs

For an initial set of assets, we recommend only listing m.USDC, m.USDT, m.DAI, and WETH.

We only include the potential caps for WBTC and METIS as a point of reference. To be clear - we do not recommend listing WBTC and METIS at this time.

Presented in the table are Gauntlet’s conservative recommendations (following Gauntlet’s Borrow/Supply cap methodology) and Chaos Lab’s recommendations (following the framework provided below). We recommend launching with the more conservative approach, adopting the Chaos recommendations, but using the Gauntlet recommendations to better understand the market size opportunity relevant to the current market data.

Symbol		Supply Cap (Chaos)	Supply Cap (Gauntlet)	Borrow Cap (Chaos)	Borrow Cap (Gauntlet)
m.USDC		4,400,000	9,754,375	No Cap	No Cap
m.USDT		2,400,000	5,619,403	No Cap	No Cap
m.DAI		750,000	1,197,019	No Cap	No Cap
WETH		70	105	40	105
WBTC		N/A	0.63	N/A	0.63
METIS		8,000	10,500	4,400	10,500

Gauntlet Comments:

• The caps for m.DAI are lower than the caps for m.USDC and m.USDT in large part because there is much less m.DAI on-chain.
  • m.USDC and m.USDT are much more concentrated in whale wallets than m.DAI (the top 3 and 5 wallets holdings informs its borrow caps).
• We suggest low supply/borrow caps for METIS relative to its total circulating supply (5.4mill METIS) because
  • It costs only ~$400k to induce a +/-2% price change in $METIS
  • Its daily trading volume (across DEX and CEXs) is only ~$7mil

Chaos Labs Comments:

The supply caps were derived as the lower between:

• 2X the liquidity available under the Liquidation Penalty price impact
• 25% of the circulating supply on Metis

Limitation on 2X the liquidity available under the Liquidation Penalty price impact

When setting supply caps for assets, liquidity is the primary factor considered, specifically, the available liquidity in markets to support profitable liquidations, even in extreme scenarios.

When updating caps for listed assets on other Aave deployments, we can observe supplier and borrower behavior to evaluate the relationship between the supply and on-chain liquidity. However, when considering a new deployment on a chain with low liquidity, it is hard to estimate or make assumptions about supplier and borrower behavior.

Therefore, we take a conservative approach to allow appropriate risk management while setting the initial caps. To calculate the cap, we will assume that 50% of the total supply cap will be liquidated at once. From observations across other deployments, this is an extreme scenario, so it is a prudent approach for the initial supply caps.

Our general approach toward setting supply and borrow caps is to set parameters conservatively at first and adjust them to increase reward vs. risk over time as we observe user behavior. This approach also holds in this case, and we will make adjustments as we progress.

While the total TVL is a general measure of market liquidity when addressing the specific concerns of liquidity that can be used to absorb potential liquidations, what is truly relevant is the liquidity available in the range of the Liquidation Penalty price impact. This is because the rest of the liquidity in the pool is not likely to serve in such cases. In the supply caps for stablecoins, we predict that funds will flow organically into pools in the case of arbitrage opportunity, as we see in other markets. Therefore, specifically in the case of stablecoins, we do not observe the current TVL of the pool to be a hard limit on the caps.

Limitation on 25% of the circulating supply on Metis

As mentioned above, one significant risk factor most relevant in new deployments is the behavior of users. While the consideration of on-chain liquidity is straightforward and most relevant, another element that needs to be taken into account is the impact on market behavior. Once an actor in financial markets reaches a significant market share, this actor’s presence changes the behavior of other actors. This means that if a new actor becomes substantial so that they impact user behavior, the estimates cannot rely on current user behavior. The more market impact a new actor has, the more it will change other actors’ behavior. This is much more significant in smaller ecosystems, where only a few prominent actors exist. For instance, if some of the liquidity in DEXes shifts into Aave, it will increase Aave TVL, but there will also be less liquidity to support liquidations in the short term until new actors join the ecosystem.
Therefore, we set a limit on initial supply so that when Aave becomes such an impactful actor, we can revisit user behavior and liquidity to re-assess risk parameters.

Borrow Caps

• 0.55*SupplyCap for non-stables (per Chaos Labs’ Supply and Borrow Cap Methodology)

Chaos Labs Full Parameter Recommendations

LT, LTV, Liquidation Penalty

The proposed configuration is based on the settings of the same assets on other L2 optimistic rollups (Arbitrum and Optimism).

Liquidation Protocol Fee

Same as set for Optimism and Arbitrum

Reserve Factor

Same as set for Optimism and Arbitrum

IR Curve

Same as set for Optimism and Arbitrum

Recommendations:

		LTV	LT	LP	Supply Cap	Borrow Cap
WETH		80%	82.5%	5%	70	40
m.DAI		75%	80%	5%	750,000
m.USDC		80%	85%	5%	4,400,000
m.USDT		75%	80%	5%	2,400,000
METIS		40%	55%	10%	8,000	4,400

[Leeroy_Jenkins]

Dear Aave team and community,

We value Aave highly for the scrutiny which is being applied with regard to protocol changes and deployments on other chains. So does the market which is reflected in Aave’s TVL.

The discussion in this thread focuses on the technical side.

We would like to make the community aware that there are also serious issues to consider regarding the business ethics applied by the Metis team.

BinaryDAO (a protocol on the Metis chain) duped investors during their fund-raise and to-date. Metis was deeply involved in this fund-raise. A group of duped investors has tried to work together with the Metis team (including one of their co-founders) to resolve this situation for months now. Metis has shown no willingness to help this case forward.

The below article explains Metis’ involvement in BinaryDAO’s fund-raise. Further research by us shows that the ties between Metis and BinaryDAO (and other parties) are even deeper.

Taking a $BYTE

We believe that it is in Aave’s best interest to include an assessment of the non technical aspects when considering a potential Metis deployment.

[ghostlyenergy]

Thanks @ChaosLabs.
It is my opinion, with such low supply and borrow caps, it hardly seems worth the effort and risks to move to Metis at this time.
Aave and the wider DeFi ecosystem will be stronger if Aave continues to focus on the existing markets and expand to new chains only when there is a strong case for Aave’s growth, which does not appear to be the case with Metis at this time.

[vicjo]

Would have to agree with @ghostlyenergy. The thing here is that Metis community is using aave integration for hype to pump the token price. The fact is that metis TVL is so low that there are plenty of other projects (not L2 chains) that have higher TVL than whole Metis ecosystem. I honestly belive that AAVE should focus on other chains with much more TVL and less shady projects (metis links with ByteDAO).

[Riju]

With all the respect. It really pains me to watch people going as far as to create an account only to go and FUD other project and spread false info. You need to do your research before you invest in anything in crypto and invest only what you can afford loose. if you loose money it’s on you not on the project’s founders or anyone else. Metis is a young open promising chain, and anyone can built on it, they vet out projects that apply for ceg and the project you’re reffering to didnt have the approval at the time . All promising chains had rugs, scams etc. It’s it’s just a part of the game, if you can’t play it don’t invest in crypto.I Can see the same handful of people fudding on twitter, telegram and even now here about this over and over just because they don’t have a proper risk management. And no, don’t spread baseless information please, of course METIS community is getting excited about AAVE as there are many reasons for that but If you had really done your research you would know that metis team have expanded to nearly 100 people,integrated chainlink, Stargate, launched on few exchanges like coinbase, are building first op-zk hybrid, building foundation for web3 and manythings more to get excited about . All this has been happening during the worst crypto crashes in history. So no, metis is not using AAVE to pump the price and dump as you described and it’s just silly to even assume so, metis has many great catalysts coming not just AAVE . There is many great things coming to this eco and aave and metis can defintely benefit eachother and build something very interesting together. In the end I’m sure that educated investors will make the right decision based on the facts, and reviews we’ve been seeing. The rest is just the noise.

[Franco]

Metis team has achieved important milestones in such a short period of time. I’m highly confident that metis and aave integration will provide huge benefits for the whole crypto system. Defi vs Cefi.

[Leeroy_Jenkins]

Work In Progress on Twitter: “The Metis files | Part 1: Follow the money | The warming-up ---------- @MetisDAO acts like BinaryDAO is fully independent from Metis and that they are not able to help investors to return the $2m in stolen funds, undo the 15% team mint and implement a DAO. Is this true? 1/x https://t.co/9d4Fy0SYeY” / Twitter

[dnm]

@Metis team, from the inactivity here from your side I personally end up with the understanding that AAVE is not a priority anymore on your roadmap. Just 2 sentences with some directions towards your community are enough. I really can’t think of 1 good reason why this lack of communication, even if you are building at the background…

18.02 ChaosLabs post their report and recommendations

Today is 14.03. No comment from your side

Please let the community know whether you are giving up on this integration so that we can adapt.

I know that you are doing your best and appreciate all your efforts. Thank you.

From: a Metis supporter, who doesn’t know what’s going on.

[Metis]

Hi!

Thank you for bringing this to our attention. We apologize for any frustration or confusion caused by the lack of communication on our end regarding the AAVE integration.

We want to assure you that the AAVE integration is still a priority for us, and we are actively working on it in the background. We have been working alongside BGD, Chaos Labs, and Gauntlet to get everything in order on our end as per the recommendations in the report.

However, we understand that communication is important, and we will make sure to provide regular updates on our progress in the future.

Once again, thank you for your support and understanding. If you have any further questions or concerns, please do not hesitate to reach out to us.

[Metis]

Our snapshot vote has been published: Snapshot

We have collated the contents from our original post, as well as the updates in the thread and some recent developements.

We want to thank BGD Labs, Gauntlet, and Chaos Labs for working alongside us in this process and collaborating on the due diligence for the Aave community as a whole.

[lbsblockchain]

Hi all, just for full transparency, we voted NO for this proposal. Our rationale is outlined here on our delegate platform. Please reach out if you have any questions!

[Franco]

I didn’t get your fundamentals. As per the article you mentioned.

MetisDAO on the other hand, has more affordable and lower fees than Optimism.

They both have support for IPFS decentralized storage solutions, though none of them have integrated the Filecoin protocol. Optimism and MetisDAO, as previously mentioned, have EVM equivalence. Optimism has far more ecosystem developers and more foundation team members than does MetisDAO.

One of the advantages that MetisDAO has over Optimism is that it is the native currency of the Metis Andromeda network. Transaction fees are paid with Metis tokens instead of Ethereum like in Optimism. The MetisDAO cryptocurrency also has more use cases as opposed to Optimism. They can be used for governance, as well as collateral in DeFi and they are a requirement to form DACs. DACs are a more specific type of DAO, used to create companies in a decentralized space.

[Riju]

Everyone is entitled to have their own opinion and I respect yours - this is what this voting is all about. However, I think you should consider rewriting the part where you tell the public that metis is expensive and slow. The article you are directing people to was published in September 2022 . Since then metis tech has improved ten fold which can easily be assessed and is a public knowledge . Thank you for your vote but please don’t misslead other people that are yet to cast their vote. All the best

[Metis]

Intro

This message is in direct response to the evaluation posted by LBS and our intention is to clear up some of the misconceptions we saw in the analysis.

Uploading Data to L1

In terms of data not being posted on-chain, that’s factually incorrect. Under our current setup, metadata is submitted along with a Transaction Batch Merkle Tree Root. Any missing data from Memolab’s storage is treated as an invalid state. In the current setup, any independent observer can also monitor the transaction data submission to memolab’s storage. There is no gate. Anyone running a verifier can do so. The open source program will automatically flag if data is missing or the data does not match the commit on l1. There is no whitelisting. The only potential compromise would be short term costs, as invalid data or attempts to censor transactions would result in verifiers forcing all data to be posted on-chain (more expensive than the typical roll up). There’s no compromise in security.

No Sequencer Rotation

The primary reason we stopped adding rotation code to the existing contract is that our partners are all hoping we can move to the Bedrock architecture as well. This change demands substantial effort due to our extensive modifications to Optimism’s code and numerous Geth changes, which we aim to minimize.

Security

We’d like to clear up any misconception around verifiers in both Metis and OP. Users of Optimism can only know if the stateroots are valid or not if they run a validator node to produce the blocks again. This also applies in the same way for Metis users. But on Metis, any missing data from Memolab’s storage is treated as an invalid state. As such, users on Metis always have a way of knowing if the state root posted is valid or not.

Please note that with disabled fraud proof, the difference in Metis’ security assumptions compared to other Optimism-based chains is not significant. If the currently trusted sequencer fails to provide offline data, verifiers will promptly flag the issue, similar to Optimism’s sequencer submitting fabricated transactions. No on-chain punishment exists yet, as fraud proof remains disabled, same as Optimism currently.

Technical Roadmap:

• Migrate to Optimism Bedrock
  • Back-compatibility
  • Smart L2 compatibility
  • Cannon
  • Separation of sequencer (block producer) and proposer (tx/states submitter)
• High Availability - Metis Block Producer Pool
  • Support peer promotion to sequencer
  • L1-based producer (block # - signature)
  • MPC-based proposer committee
  • Always on functionality (even during network upgrade or fork)
  • Complete Optimistic DA
• Faster Finalization - Metis Hybrid Rollup - zkMIPS
  • Stark-based prover/verifier on MIPS generated by Cannon
  • Batch finalization when verifier smart contract approves the proof
  • Fraud proof still required to challenge and slash the sequencer

Competitive Advantage for Metis

We have had the lowest transaction cost out of all the L2s as measured by L2Fees.info, since our Smart L2 network upgrade in April 2022. As part of our vision and a benefit of our Smart L2 architecture, we have enabled fee stability on our network. This means when block demand on L1 goes up and the fees go up on all other Optimistic Rollups, our network fees will remain low and stable. This feature is essential in our targeted approach for onboarding Enterprise into Web3, as businesses with margins will require stability in their operational costs and day-to-day business activities.

BGD’s Report

We want to reference BGDs Technical Risk Evaluation that we worked hand in hand on over the last few months. BGD is Aave’s trusted technical risk partner and their analysis of Metis had a strong rating on the security of our chain. We encourage everyone to take an in-depth look at the report (BGD. Aave <> Metis. Infrastructure/technical evaluation).

Closing Remarks

We worked alongside Chaos Labs and Gauntlet to ensure the risk parameters and asset listing recommendations were up to standard as per Aave’s trusted market risk assessors.

We hope this clears up any misconceptions and are happy to elaborate further if needed.

[lbsblockchain]

Cheers, that’s very helpful - thank you for clarifying, really appreciate it.