This is an archive of our post on Aave governance forum. Read the full thread here.

@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

• LlamaRisk Report - April 25, 2023

• Response by Tangible - April 27, 2023

• LlamaRisk proposal to pause USDR gauge - April 28, 2023

• USDR Depeg - Oct. 11, 2023

TUSD: A custodial stablecoin with intransparent reserves

• LlamaRisk Report - Aug. 19, 2023

• Proposal to reduce Pegkeeper exposure from 25m to 5m crvUSD - Aug. 24, 2023

• TUSD depeg - Jan. 18, 2024

• Proposal to reduce Pegkeeper exposure from 5m to 0 crvUSD - Feb. 12, 2024

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.