Launch Aave V3 on Metis

We have launched the signalling vote for launching Aave v3 on Metis (Snapshot)

As well, in the spirit of transparency, we have posted a thread detailing where we are in the Aave governance process and our collaboration with BGD Labs (https://twitter.com/MetisDAO/status/1602328169507323905?s=20&t=cIhsesEqs3exXWjWKUYplg)

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I am cautious of supporting this proposal.

If Aave attracts 10% of the chain’s total TVL (conservative,) it attracts $4.3mm for the protocol…

As Metis exists today, I am not convinced of the presence of users / market to outweigh development costs. This market (assuming 10% retention) would be the second smallest on Aave.

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The ACI is conflicted about this proposal.

Pros:

  • We are strong supporters of diversity and believe that Metis is a legitimate project with a dedicated team.
  • Metis has a thriving ecosystem of native dapps and developers, which is a positive sign.
  • Metis is a Layer 2 (L2) platform, and we support diversity in the L2 space. This also means that the risks to the Aave protocol would be lower on Metis than on an alternate L1 platform.

Cons:

  • The TVL and liquidity on Metis are relatively low at the moment, with just $91 million according to L2beat. This means that the market potential for the Aave protocol on Metis may be limited.
  • The current bear market has caused numbers to drop across the board, so the business potential for Aave on Metis may not be worth the additional risks and bandwidth allocation.
  • Some concerns have been raised about the intrinsic infrastructure of Metis, and while we believe the associated risks are low, they should still be considered.

For these reasons, we are inclined to vote ABSTAIN in the snapshot. However, we are ready to switch to a more supportive vote in the future if conditions improve.

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The primary source of concern in relation to Metis is low-level liquidity. In addition to this, there are fundamental infrastructure problems that Metis has not addressed, for this reason, we are not supporting this proposal as it is not in Aave’s best interest.

We are open to changing our view when these issues of liquidity and infrastructure have been addressed, in our opinion these factors are non-negotiable.

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I voted NO mainly because of the reason that the TVL is extremely low. I just don’t see any benefit for the protocol to be deployed there right now. The work associated with the deployment will be much higher than the benefit. I would like to see the market recover and then see how Metis TVL will look like in the future, maybe in the next bearmarket.

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It is bro, i was with metis since first days, and using it, ita one of the best l2

$Metis one of the beat L2 i ever used, looking forward for this migration, its the best for both aave and metis

We would like to clarify certain aspects regarding potential deployments of Aave in new networks, including giving some transparency on a case like Metis.

During the past months, we realized that Aave community members required more technical information from a party exclusively associated with Aave before taking a decision on deployment. While we were working on the framework (published here) for all candidates, we were contacted by Metis first, who already had some discussion in the previous month on this forum.

As our duty is to support people interested in any type of integration with Aave, we explained that we would like to do a technical report to present to the Aave community around their infrastructure, security and other misc key points, on the technical side. And we shared the set of points to analyze, described HERE, as it was in line with the framework we were about to publish too.

One thing we realized is that the initial snapshot didn’t have much participation, creating a bit a “gray” situation of what is authorized by the Aave community or not.
In addition, paradoxically enough, another framework for the authorization of new networks didn’t have much participation either (HERE) , so not even the rules of approval were properly approved.

And so, before elaborating our report, we recommended Metis to create a clear temperature check/signaling vote to really clarify high-level the appetite of the Aave community to deploy in Metis.
It is important to highlight that as we proposed in our framework, this should probably not be considered as the last vote of “deployment authorization”, because it seems unnatural that the community doesn’t get an opinion from us or other engaged parties, to inform their decision, as evaluation of a network is not completely straightforward.

The 150k quorum we suggested in our framework is just a reflection of the previously proposed framework and the rationale of it is:

  • Meaningful amount of community members show up, with more than 50% of the requirements of on-chain Level 1 (320k).
  • Still “softer” requirements than on-chain, as for example the AAVE requirements to create a Snapshot vote, and also because for us doing an assessment is simpler than producing entire development projects.
  • We get clear signaling from the community to do the assessment work. Ideally, all candidates popping up in the forum would be assessed, but without really knowing if high-level the Aave community is interested, our work will be pretty useless.

Obviously, we are serving the Aave community, so could be important to at least understand if the 150k YES requirements sustain for the Metis vote, that way we will produce and publish a technical analysis about the network.

I am deeply against this proposal

“C’mon bro, Metis good bro, trust me bro” guys, let’s be serious, as @fig mentioned, all these moonboys comments are super, super annoying

You guys should all think about long-term (and healthy) growth, instead of trying to pump your bags

The demand for Metis needs to be improved; Love the team & love the product but it’s simply TOO EARLY for now

The AAVE Metis market would most likely end up like the Harmony/Fantom ones at this point ^^

edit: Not even talking about the nearly non-existent TVL

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.

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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.

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,

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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

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@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

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

      https://i.imgur.com/0HMZOrV.png

  • Last 45 day bridge activity(dune query)

    https://i.imgur.com/xTqAy9d.png

    • 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

Screen Shot 2023-02-15 at 9.41.28

Hermes Protocol Daily Trading Volume

Screen Shot 2023-02-15 at 9.42.31

Hermes Protocol TVL

Screen Shot 2023-02-15 at 10.09.59

Hummus Exchange Daily Trading Volume

Screen Shot 2023-02-15 at 10.30.02

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

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
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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.

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.

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.

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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).

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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.

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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.

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