[TEMP CHECK] Onboard LlamaRisk as Aave Risk Service Provider

Risk
1

Summary

LlamaRisk proposes to support Aave as a risk management service provider, reinforcing the DAO’s reputation for prioritizing protocol resiliency and user assurances. With a proven track record of thorough risk analysis, an unbiased approach, and an unwavering commitment to the success of our partner protocols, we have earned the trust and endorsement of those we work with.

LlamaRisk was established in 2021 as a service to Curve DAO and its LPs, providing risk transparency analyses of assets listed on Curve, including stablecoins, RWAs (Real World Assets), LSTs (Liquid Staking Tokens), and LRTs (Liquid Restaking Tokens). In 2023, we partnered with Prisma Finance to develop a comprehensive framework for assessing LST collateral risk, which we have used to produce detailed analyses for onboarding assets onto the protocol. We have since expanded our suite of risk management solutions with agent-based simulations and DeFi strategy management.

Motivation

LlamaRisk is a DeFi-native risk firm that understands the delicate balance protocols face to remain competitive in a rapidly evolving landscape without sacrificing responsible, sustainable practices.

Our core values are transparency and accountability. When armed with reliable and objective information, DAOs and their users are equipped to take action in their best interest. Therefore, our duty is to consistently demonstrate sound reasoning based on thorough analysis that our partners have come to depend on.

LlamaRisk has distinguished itself through:

  • Long-form Comprehensive Risk Analysis: Over the last two years, we have published over 70 long-form risk assessments in the public domain. Our procedures and QA/QC processes ensure we present clear, unbiased information.
  • Governance & Parameterization Recommendation: We have a longstanding history of providing consultation for our risk analyses. Our detailed reports, along with a hands-on approach, have informed critical decisions within our partner DAOs.
  • Diversity of DeFi Knowledge: Our team understands many protocol architectures, especially concerning stablecoins, liquid staking derivatives, and pegged assets generally. This knowledge comes from extensive research, development, and hands-on experience with various DeFi protocols, enabling us to anticipate and mitigate risks effectively.
  • Commitment to Innovation: At LlamaRisk, we continually evolve our methodologies and tools to stay at the forefront of DeFi research and risk management, ensuring our strategies are effective.

Specification

Recognizing the significance of a dual risk provider model, LlamaRisk’s proposal is designed to complement Chaos Labs’ risk services, with whom we plan to collaborate extensively.

The initial 6-month engagement, which may be extended pending DAO approval, involves the following scope:

  • On-demand Risk Assessments: LlamaRisk will deliver prompt and in-depth risk assessments for assets listed or considered to be listed on Aave with particular emphasis on the collateral types comprising the GHO stablecoin. This will involve developing a custom framework tailored specifically to the categories of relevant assets and Aave’s needs, which will standardize the assessment process.
  • Collaborative Engagement with Chaos Labs: We plan to collaborate extensively with Chaos Labs, combining our expertise to provide Aave with comprehensive and nuanced risk analysis, enhancing the protocol’s risk management capacity.
  • Active Involvement in DAO Governance: LlamaRisk will actively participate in Aave’s DAO governance, offering informed insights and strategic recommendations on risk management practices for principal stakeholders and the community.
  • Legal Regulatory Advisory and Policy Work: We will offer specialized legal research and regulatory guidance, including a thorough analysis of evolving legal frameworks and regulatory policies, and equip Aave with the necessary foresight to navigate the regulatory landscape of the DeFi sector effectively.

Risk vectors are diverse and cannot be fully managed by qualitative risk tools. That is why we specialize in comprehensive risk assessment of tokenized assets and DeFi protocols. Our work supports our partners in making informed decisions that mitigate potential threats and promote a culture of transparency and sustainability. Our team of experts meticulously evaluate various risk factors, including but not limited to:

  • Protocol design and architecture
  • Tokenomics and economic incentives
  • Smart contract security
  • Governance mechanisms
  • Regulatory compliance

LlamaRisk leverages advanced simulation techniques, including statistical and agent-based modeling, to test and validate DeFi protocols and their collateral assets under various stress scenarios. Our simulations provide valuable insights into potential risks, allowing our partner protocols to set competitive parameters resilient to adverse market conditions.

Our DeFi strategy managers employ data analytics and risk monitoring tools that allow us to maintain high efficiency and safety standards. We support our partners with publications and dashboards that give users the information they need to interact with the protocol responsibly.

Our advisory services cater to the unique needs of DeFi projects, providing strategic guidance and support throughout their lifecycle. From ideation to implementation, our experienced advisors offer expert advice on protocol design, tokenomics, governance, and risk management strategies, ensuring optimal outcomes for our partners.
Comment

Traversing the complex regulatory landscape is crucial for DeFi protocols and projects. Our team of legal experts provides in-depth analysis and guidance to ensure compliance with applicable laws and regulations. We evaluate legal risks, assist with regulatory filings, and help clients develop robust strategies for operating within the evolving regulatory framework.

We actively engage in policy development and legislative processes related to crypto and blockchain at national, supranational, and international levels. This includes participating in specialized working groups, contributing opinions to public discussions on regulatory developments, and involvement in policymaking dialogues. We aim to ensure that DeFi stakeholders are represented and protected in the evolving regulatory landscape, facilitating informed and proactive responses to legislative changes.

Duration & Proposed Budget

We propose a flexible retainer model for our collaboration, with an initial 6-month commitment. This model is designed to ensure maximum efficiency in resource utilization, with a commitment to transparency and responsible financial management.

The budget request is $250,000 for a 6-month engagement.

Detailed quarterly reports on our spending will be provided, with any unused funds either carried over to the next quarter or returned to the Aave DAO, as preferred.

Overall, this proposed scope is an opportunity for LlamaRisk to demonstrate its ability to make an appreciable improvement in Aave’s risk management, which is a pragmatic and cost-effective onboarding strategy. It also serves as an introduction to building a working relationship with Chaos Labs and DAO stakeholders. We intend to demonstrate our value throughout a 6-month engagement and expand our suite of services as pain points are identified.

We are a flexible and agile team ready to work together to provide risk management solutions that will suit Aave’s specific needs within the wider organization of service providers and stakeholders making up the DAO.

Useful Links

You can find in this section links to our work:

Disclaimer

This proposal is powered by Skywards. The Aave Chan Initiative is not directly affiliated with LlamaRisk and did not receive compensation for creating this proposal.

Next Steps

  1. If consensus is reached on this [TEMP CHECK], escalate this proposal to the Snapshot stage.
  2. If the Snapshot outcome is YAE, this proposal will be escalated to ARFC stage
  3. Publication of a standard ARFC, collect community & service providers’ feedback before escalating the proposal to the ARFC snapshot stage
  4. If the ARFC snapshot outcome is YAE, publish an AIP vote for final confirmation and enforcement of the proposal

Copyright

Copyright and related rights waived under CC0

12 Likes
2

Hello @LlamaRisk im happy to see a risk provider engaging with the DAO after recently one decided to leave the DAO.

I like the scope you are providing and the 6 months of “test” engagement. And from your previous work I can see that you are very strong focused on stablecoin assets, right?
Can you tell me where you are based and how many people are working for LlamaRisk and maybe some background information, to better understand your skills.

If approved by the DAO what would the collaboration between you and Chaos look like?
From what I can read both of you are specialized in different fields.

Are you going to be Aave exclusive or also working for other lending protocols, for example also forks of Aave v2/3?

Thank you

4 Likes
3

It is great to see a team like @LlamaRisk taking interest in becoming a Risk Mgmt provider for Aave.

Do you have a high-level example of a low-hanging fruit you would tackle first? Or an aspect of Aave you would like to focus first?
Clear examples would help to understand what some of the themes you outline in the Temp Check would look like.

Would there be a ramp-up plan if you were to be elected? How would that look like? Aave has many markets in different blockchains resulting in different risk profiles. Also, Chaos Labs (and prev Gauntlet as well) are part of different roles (I believe stewards or sth like that).

3 Likes
4

@EzR3aL, @Frida, appreciate your support and interest!

At LlamaRisk, we spend a great deal of our attention assessing the protocol design of stablecoins, liquid staking derivatives, and other pegged assets. We also review centralized issuers and relevant risks related to reserves, attestations, and regulatory compliance. Our main clients are Curve and Prisma, so naturally, most of our work revolves around stablecoins and liquid staking tokens.

We began in 2021 as a service to Curve DAO in response to a realization that integrations were happening faster than DAO members could reasonably assess the risk. We formed to be an objective resource because, at the time, it was a bull market; there was a new, exciting bribe market, and we realized a certain complacency and get-rich-quick mentality was overcoming good judgment that could have lasting consequences. Here are a couple of situations where we put our neck on the line in the interest of protecting Curve’s reputation and its LPs, and which resulted in favorable outcomes for Curve:

Tangible USDR: A stablecoin backed by real estate

TUSD: A custodial stablecoin with intransparent reserves

Our team comprises researchers, analysts, economists, data scientists, smart contract developers, and legal experts. We have five full-time members and about a dozen analysts. Our team is fully distributed across America, Europe, and Asia.

We have a prior history wokring with Chaos Labs, with contracting them to develop a risk dashboard for crvUSD. We communicated with members of their team from onboarding until delivery of the product and have begun developing a good relationship with their team. We intend to work closely with them and provide support in areas where their resources are better spent elsewhere. That means we will produce qualitative collateral risk reports for assets backing GHO, including market and adoption analytics and technical, counterparty, and regulatory risk factors. This focus will allow Chaos Labs to dedicate more attention to quantitative analysis across the various chains Aave is deployed. LlamaRisk and Chaos Labs are aligned in our enthusiasm for collaboration, and we see this mutual attitude as a big opportunity to bring Aave’s risk services to the next level.

We continue to partner with Curve and plan to provide service for Curve Lending, particularly by developing a simulation tool for improved optimization and risk monitoring. LlamaRisk has never directly engaged with AAVE forks; we work with just a handful of protocols, most prominently Curve Finance and Prisma Finance. For full transparency, we have worked on aggregator vaults on behalf of Curve and Prisma, including strategy design and management and supporting contract development. These are initiatives to promote integrations of the crvUSD and mkUSD stablecoins, employing high transparency and risk management standards for which we have built a reputation. We have an active aggregator on Sturdy v2 with $5.7m in TVL currently and an upcoming vault on Morpho, both of which involve Curve LPs as collateral to borrow crvUSD.

To address potential concerns about how committed we are to our partners, consider that we have been partnered with Curve for the entire time we have operated and have yet to terminate an engagement with any of our partners. Loyalty is central to each protocol we partner with; it is not something we treat casually. Anyone can verify this by contacting the Curve and Prisma team (on Telegram if direct contacts are unavailable) and asking them how their experience working with LlamaRisk has been. We guarantee they will only have positive things to say. Rest assured that we will treat an engagement with Aave with the same dedication that has earned us the respect of our other partners.

We see potential to add immediate value in a few key areas:

  1. Support GHO adoption: A particular focus will be put on the GHO stablecoin to review and assess the underlying collateral assets. We will also explore potential venues for further integration and adoption of GHO within the broader ecosystem. Our insights will help to ensure the stability and trust in GHO, supporting its wider use and acceptance.
  2. Regulatory Review: We offer unique expertise in providing regulatory reviews of Aave, which will complement Chaos Labs’ quantitative analysis and serve as a component of multidisciplinary risk assessment. Our team will prioritize this area, adding significant value to the community. We can also explore delivering stand-alone updates on key regulatory changes to inform the community about the evolving landscape.
  3. Empirical Research and Qualitative Risk Assessment: We will provide empirical research and qualitative risk assessment of assets in Aave’s markets across various chains, analyzing factors like market dynamics, adoption, technical risks, and counterparty risks.

As a new contributor to the Aave ecosystem, we are excited to learn about the different governance processes, participating actors, and the overall structure of the protocol. While we have extensive experience interacting with various DAOs, we recognize that engaging directly with Aave governance will require some learning, and we are very keen to acquire this knowledge quickly. Note, however, that we do have extensive experience as Aave users; members of our team have interacted with the protocol and followed developments since as far back as early 2020.

We are committed to rapidly ramping up our participation in governance discussions, particularly in areas where our expertise can add significant value. Chaos Labs has generously offered support and guidance to facilitate our learning process, which will help us adapt and contribute effectively.

Our ramp-up plan involves dedicating efforts to familiarize ourselves with Aave’s governance structure and risk management frameworks. We will work closely with the Aave community, Chaos Labs, and other key stakeholders to ensure our contributions are well-informed and aligned with the protocol’s goals. With the unique needs of Aave in mind, we will develop a custom framework to comprehensively assess assets on Aave, particularly collateral backing GHO, as a priority. We will then systematically begin applying the framework, starting with assets that GHO is most exposed to and/or present noteworthy systemic risks.

By the end of this initial engagement period, we aim to be fully ramped up and integrated into the Aave ecosystem, allowing us to expand our scope to cover additional observed pain points and deliver maximum value to the community sustainably and effectively.

6 Likes
5

We’re excited to see new contributors looking to contribute and enhance risk management within Aave. As the leading lending protocol featuring a broad range of deployments and assets, Aave necessitates top-tier contributors, especially in risk management.

The proposed scope appears to enrich the DAO, offering a complementary perspective to our work at Chaos Labs, especially in areas outside our current focus, as described by the Legal Regulatory Advisory, Qualitative Analysis, and Policy Work. We highly regard LlamaRisk’s past publications and have had a positive experience collaborating with the team while we developed a risk platform for crvUSD. Adopting a phased approach, beginning with a clearly defined scope, to allow LlamaRisk to demonstrate its value to the DAO and refine its focus based on identified needs and opportunities for maximum impact seems prudent.

If the community decides to onboard LlamaRisk, Chaos Labs will be ready and eager to assist with their onboarding. We will collaborate closely to protect Aave and ensure it continues to be the leading protocol in the space.

6 Likes
6

The current proposal has been escalated to TEMP CHECK Snapshot.

Vote will start tomorrow, we encourage everyone to participate!

4 Likes
7

I wonder if there will there be other bidders for Aave’s risk provider position. It would be helpful to see other contenders before voting on the eventual on chain proposal.

1 Like
8

Thank you @LlamaRisk overall supportive for the proposal, the budget seems also good but also the scope as well. I think this proposal is the best proposal fro the Aave DAO with a subject for review after the 6-month engagement.

3 Likes
9

LlamaRisk’s credentials are impressive; their work with Curve and Prisma, the 70+ risk assessments they have published, the team composition, previous experience in collaboratively working with Chaos Labs, and expertise around regulation and policy, which is a skill-set the DAO does not currently have, position LlamaRisk well for the engagement. Their agent-based simulation model will complement that of Chaos Labs and provide a check and balance to their recommendations depending on the inputs to LlamaRisk’s models. The budget proposed is fair - $250k for the first 6 months is not excessive at all. The disclosures and reports provided on their spending are also good practice.

The scope adds further expertise in the areas of LSTs, LRTs, and GHO, all of which are becoming critical components of the protocol and could drive a lot of revenue for Aave. Providing further expertise on GHO is crucial for its wider adoption, so this is a welcome addition for the DAO. It is not immediately clear why the DAO would need any regulatory advice but since this is included within LlamaRisk’s broader scope and may become more important if Aave engages with RWAs in the near future, we are not opposed to it.

One concern is that other risk managers who potentially want to work with the DAO should also get a chance to put their proposals up. However, there is time before a potential on-chain vote, so if other risk managers put their hands up to work with Aave DAO, these can be considered as well.

All in all, we will vote YES in favour of this proposal.

1 Like
10

This is a great proposal from an experienced team who put forth a proposal with a good scope and budget. The only issue that may arise is with competing proposals.

In order to solve this I would proposal that after a successful ARFC Snapshot vote, prospective risk service providers should be put to a final Snapshot vote to determine which service provider will be engaged by the DAO.

1 Like
11

Hello,

With the ACI we’ll be supportive of this TEMP CHECK, As we have 3 different proposals for a Risk service provider slot,

We do not consider an efficient ressource allocation to have more than two Risk service providers.

We suggest that at ARFC stage, the candidates that received a positive TEMP CHECK snapshot vote outcome to be in sync at ARFC to ensure equal opportunity and representation and allow everyone to have a fair shot to present their SP candidacy to the Aave community.

After a sufficient debate period, we suggest a single ranked voting ARFC snapshot vote to allow governance to express their preference.

2 Likes
12

While we are eager to start working for the Aave DAO and await the ARFC vote for selecting the additional risk service provider, we wanted to share some of our recent work that is relevant to current Aave affairs;

Onboarding weETH to Aave V3 (mainnet and Arbitrum)

We recently completed a comprehensive risk assessment on Ether.fi’s weETH token, which can be found here. This report analyzes the market, technology, and regulatory risks associated with weETH as a potential collateral asset. This assessment is highly relevant to the ongoing discussions around onboarding weETH to Aave V3 on Ethereum ([ARFC] Onboard weETH to Aave v3 on Ethereum).

Our team is continually building expertise in the emerging Liquid Restaking Token (LRT) ecosystem, and we are committed to providing valuable insights to inform the AAVE community’s decision-making process.

Onboarding sUSDe to Aave V3 mainnet

We are also working on a risk assessment for Ethena’s sUSDe. Given the recent proposal to onboard sUSDe to Aave V3 on Ethereum ([ARFC] Onboard sUSDe to Aave V3 on Ethereum), we believe our forthcoming report on sUSDe will be of great interest to the Aave community. Once completed, we will share our findings and analysis with the DAO.

We are dedicated to providing high-quality, independent risk assessments to support the growth and security of the Aave protocol. We look forward to working more closely with the Aave DAO and contributing our expertise to the community.

1 Like
13

Sharing our latest publication which dives deep into the challenges DeFi lending faces under the current European regulatory landscape.

Key Highlights:

  • The need for DeFi protocols to adapt and possibly redefine strategies to ensure genuine decentralization, amidst regulatory scrutiny.
  • Practical suggestions for DeFi protocols, including enhancing DAO structures and maintaining a permissionless design, to uphold the decentralized ethos and operational integrity.
  • Upcoming comprehensive analysis by the EU Commission, which could set the stage for future regulatory treatments of decentralized finance.

Read more here:

4 Likes