[AAVE] Chaos Labs <> Aave Risk Management Service Renewal

Simple Summary

Chaos Labs proposes to renew our engagement with the Aave DAO. We will provide our full suite of risk management products and services, covering all of Aave, including V2, V3, and GHO, across all current and future deployments.

Our current annual engagement is set to end on November 13th, 2024.

Background

In November 2022, Chaos Labs formally joined the Aave DAO as a service provider specializing in risk management and parameter optimization.

During this time, we have consistently demonstrated our unwavering dedication to the DAO, covering all aspects of the protocol across all deployments and providing the community with proactive risk parameter recommendations alongside reactive analyses and risk-mitigating strategies in light of significant market events. Chaos Labs has initiated over 230 ARFCs and posts, and actively engaged with more than 770 posts, including parameter optimization, onboarding of new assets and new deployments, deprecation of V2 and migration to V3, GHO growth, and community support during major market events.

Throughout our engagement, the protocol incurred minimal bad debt, even during significant market events, including those on August 6, 2024, which resulted in zero bad debt.

:bulb: A comprehensive summary of Chaos Labs’ activities over the past contract year is available in our monthly community updates here. Chaos Labs - Monthly Community Update

Highlighted products and ongoing work

Products:

• Aave Risk Monitoring and Alerting Platform
• Chaos Labs Asset Protection Tool
• Risk Oracles for Parameter Recommendations
• GHO Risk Monitoring Dashboard

Analyses and Proposals:

• CAPO Framework
  • Chaos Labs Correlated Asset Price Oracle Framework
• New Deployments
  • [ARFC] Aave V3 Deployment on BNB Chain - #5 by ChaosLabs
  • [ARFC] Deployment of Aave on zkSync - #7 by ChaosLabs
  • [ARFC] Deploy a Lido Aave v3 Instance - #7 by ChaosLabs
  • [ARFC] Deploy an Etherfi/Stablecoin Aave v3 Instance - #2 by ChaosLabs
• Market Events
  • Chaos Labs Market Alert - High Price Volatility and Liquidations - 04/13/2024
  • USDP Price Spike Impact - 04/16/2024
  • Chaos Labs Risk Report: Insights from Recent Market Events - 06/08/24
  • Chaos Labs - Ethena's USDe and sUSDe Funding Rates - 08/06/24
• GHO
  • [ARFC] GHO Cross-Chain Launch - #4 by ChaosLabs
• V2 → V3 Migration and V2 Deprecation
  • [ARFC] Deprecation of Small-cap Stablecoins on V2 Ethereum
  • [ARFC] Temporary Freeze of Long-Tail V2 Assets
• Risk Stewards
  • Risk Stewards posts

Proposal

Chaos Labs offers a comprehensive risk management and optimization platform for Aave, covering the entire spectrum of Aave, including V2, V3, and GHO, across all current and future deployments.

Our strategies aim to secure protocol assets against market volatility, black swan events, liquidity attacks, and market manipulation. Our methodologies are rooted in an integrative approach, offering protocol robustness and protecting funds from market risks through dynamic risk parameter recommendations. We provide a holistic approach encompassing software and services to mitigate risks in volatile markets, countering economic attacks on the protocol and ensuring the secure preservation of user funds.

Scope

Risk Parameter Optimization

Using our state-of-the-art risk simulation platform, proprietary methodologies, and a highly skilled team of data scientists and researchers, we deliver in-depth analyses and strategic recommendations for optimizing risk parameters. Our cutting-edge simulations utilize real-time protocol dynamics and on-chain behaviors to rigorously stress-test the protocol, uncovering potential vulnerabilities and opportunities for enhancement. This advanced approach provides a detailed understanding of the factors influencing protocol health and stability, enabling us to offer data-driven recommendations that maximize protocol revenue while safeguarding user funds and mitigating risks.

Our coverage includes support for all Aave risk parameters, including Liquidation Thresholds, LTV, Liquidation Bonus, Supply and Borrow Caps, Debt Ceilings, and Interest Rate Curves.

Risk Oracles

Enhance the capabilities of Edge Risk Oracles, developed by Chaos Labs, to better meet Aave’s specific requirements, enabling more efficient and dynamic adjustments to risk parameters. This will streamline the risk management process, minimize the need for manual interventions, and significantly improve the protocol’s operational efficiency and security.

Currently, this initiative is under governance review for the Lido Instance, with plans to expand coverage to additional parameters and deployments in the future.

As part of this initiative, we will enhance our product by introducing a dashboard that monitors Risk Oracle updates, enabling the community to track historical changes and assess the impact of parameter optimizations over time.

Risk Monitoring and Alerting

We offer real-time monitoring and alerting services through the Chaos Labs Risk Monitoring Platform. These services allow users to assess ecosystem risk and protocol health at granular levels using dashboards and data visualizations. Users can drill into specific scenarios in which the protocol could be negatively impacted and receive alerts concerning significant changes to on-chain activities that could pose a risk or detriment to the protocol’s health.

As part of our commitment to delivering a world-class risk management solution for the DeFi ecosystem, we constantly iterate and improve the platform with additional features and enhancements. The Aave community will continue to gain access to the newest feature additions and enhancements continuously, allowing users to stay ahead of the curve and make informed decisions while optimizing their overall portfolio performance.

Risk Stewards and Guardians

We act as Risk Stewards, carefully managing risk while adjusting supply and borrow caps according to predefined rules. This enables us to continually raise caps, fostering protocol growth without compromising safety. A current governance proposal aims to expand the Risk Stewards’ authority to encompass a broader range of risk parameters, allowing for more agile and timely adjustments based on market conditions. Additionally, we serve as signers on the Aave Protocol Guardians, ensuring protocol security in critical situations, and as GHO Stewards.

Deprecation of V2 and Migration to V3

Chaos Labs has spearheaded several community initiatives to deprecate the V2 markets and facilitate the transition to V3, as outlined in the ‘Background’ section.

As we progress with the deprecation plan and migration efforts, we are committed to continue allocating resources and offering the community recommendations for proactively adjusting V2 parameters. This includes updates to Liquidation Thresholds, Reserve Factors and enhancing the capital efficiency of V3 markets to ensure a seamless migration of positions from V2.

Given the extended nature of the transition to V3, it remains imperative to uphold proactive risk management for V2 during this transitional phase.

Protocol Growth

Chaos Labs will provide integral support to the protocol growth initiatives through det

... please visit link below to view full proposal

https://app.aave.com/governance/v3/proposal/?proposalId=186