The lending protocol’s adoption of Chaos Labs’ product is the first time Aave DAO has approved the use of another oracle network beyond Chainlink.
Aave is a lending titan in the decentralized finance space by total value locked at $19 billion, an amount not seen since Oct. 2021.
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Posted November 26, 2024 at 9:00 am EST.
Aave, the dominant lending protocol in the decentralized finance space, has started using oracles developed by Chaos Labs, a risk management firm that has had a long working relationship with Aave.
The move automates processes for changing the lending protocol’s risk parameters such as liquidation thresholds as well as supply and borrowing capacities.
Chaos Labs is the second oracle provider in Aave’s history, following Chainlink, a widely used DeFi oracle network. Oracles provide external data and information found outside of blockchains, such as the prices of assets, to smart contracts within blockchains.
“It’s a huge deal because Aave is deployed on 10+ networks. There are, on average, 10 markets in every network so it’s like 100 different money markets. And every money market has, let’s say, over 30 different parameters. We’re talking about … thousands of parameters that need to be managed in real-time, in line with very volatile, fast-moving markets,” said Chaos Labs CEO Omer Goldberg to Unchained.
Chaos Labs’ oracles, called “Edge Risk Oracle,” now automates Aave’s risk management system in real-time, beefing up the protocol’s security and capital efficiency, Goldberg indicated.
Read More: Risk Management Firm Chaos Labs Raises $55 Million in Series A Funding
The governing body of Aave DAO, comprised of AAVE token holders, overwhelmingly approved the rollout of these oracles and automation processes on Nov. 15 for the Aave market for Lido to perform automated interest rate updates for the WETH asset, according to the vote.
Emilio Frangella, VP of Engineering at Aave Labs, wrote to Unchained over Telegram, “The integration of Edge Risk Oracles marks a significant technical advancement for Aave. By enabling real-time optimization of key risk parameters, the Aave DAO can enhance protocol stability, improve liquidity, and provide a more secure and efficient user experience.”
Aave DAO, comprised of AAVE token holders, overwhelmingly approved the rollout of these oracles and automation processes on Nov. 15 to perform automated interest rate updates for wrapped ether (WETH) for the Aave market on Lido, according to the vote.
Evolving Risk Management
Before the Chaos Labs’ oracles were used, community members of Aave DAO had to change the parameters of the lending protocol manually.
For example, in the past, in order to change a parameter, four teams had to coordinate to write smart contract(s), make a governance proposal, get funds, deploy onchain, sign multi-sigs, and so forth, Goldberg explained. The average time for these changes was 96 hours, but with these new oracles and the new automation process, the entire process takes less than a minute.
The automation of risk parameter changes can only adjust within “reasonable bounds,” which would have been helpful in March 2023, when Circle’s stablecoin USDC depegged from the U.S. dollar in light of the shutdown of Silicon Valley Bank. If Chaos Labs’ oracles had been active, a kill switch or circuit breaker could have paused the protocol, blocking new deposits and loans during the depeg.
“Users are delighted when the markets are managed on their behalf and they don’t need to be in the [governance] forum for every little thing,” Goldberg noted.
Aave is the largest lending protocol by total value locked at $19 billion, an amount not seen since Oct. 2021, data from DefiLlama shows.
