LlamaRisk Yearly Recap 2024
Wishing you happy holidays, and looking forward to the new year!
What a year it was! From a small, grassroots research collective, we've grown into a highly respected Risk Service provider for multiple industry-leading protocols in DeFi. We want to take this opportunity to thank all our supporters, recap our major wins for 2024, and share a bit of insight into what we have in store for 2025!
2024 Highlights
Expanded our work with more protocol partners, including Curve, Aave, Ethena, YieldNest, Defi.money, and Arbitrum. LlamaRisk helps protect approx. 30b of capital in DeFi!
Grew from a team of 5 to over 20 part-time and full-time contributors.
Unveiled our Risk Portal customized for each protocol partner, showcasing protocol health metrics and risk recommendations supported by our quantitative analyses.
Emphasized the development of quantitative tooling with our highly adaptive agent-based simulation engine that allows us to determine optimal protocol parameterization.
Developed methodologies to automate monitoring of critical protocol health metrics, such as safe exposure to collateral in lending/CDP markets and insurance fund requirements.
Greatly expanded collaborations with teams of asset issuers, DAO delegates, and fellow service providers who are pushing our industry forward.
Introduction
2024 has been a year where DeFi has proven that resiliency will be rewarded. At LlamaRisk, we consider resiliency our #1 mandate; it is a quality we expect of ourselves and tirelessly imbue into our work with our partners. It is a constant that never changes at the whim of market sentiments, most importantly when euphoria runs high and there may be temptations to become complacent.
This steadfastness has paid off as we have greatly expanded our team and protocol partnerships over this past year without sacrificing our service's efficiency. We expanded the breadth of our expertise to include qualitative risk evaluation, quantitative tooling and analysis, and growth management. We believe these combined focus areas will position our partners to rise above the competition by avoiding unnecessary pitfalls while pursuing strategic growth initiatives.
We want to thank our supporters who share this vision and our common alignment to keep DeFi resilient. This past year has been the most exciting for us yet, and our success would not be possible without the builders who continue to push the envelope of innovation, our fellow service providers committed to the spirit of collaboration, and the community of DeFi enthusiasts who are the ultimate beneficiaries of our work.
With that, we want to share the highlights of our contributions this past year and where we are going next.
2024 Year in Review
Our primary goal for this year has been to carefully scale our operations with additional specializations that improve our value proposition to our partner protocols. We have onboarded several quantitative researchers and developers and unveiled a number of new services.
Thanks to our Partners
We are always careful when onboarding new partners that they align with the interests of our existing partners. Our goal is to expand strategically to benefit all who work with us. This year has been our most exciting yet, working with additional protocols that span multiple DeFi verticals, including DEXs, lending platforms, decentralized stablecoin issuers, and restaking platforms.
Curve: We were borne from the Curve community and have worked diligently for the DAO since 2021. As Curve has launched crvUSD and, more recently LlamaLend, we have expanded our scope to support qualitative and quantitative services for these new products.
Aave: This year we joined Aave as a risk service provider where we conduct risk analysis for asset onboarding and broad risk research and analysis across all deployed chains and markets. We were renewed for another 6-month engagement in October by unanimous DAO approval.
Ethena: We have joined the Ethena Risk Committee along with other top names in DeFi risk services. Together, we align on risk-related consultation. Our focus has been on quantifying Reserve Fund capitalization requirements, legal risk evaluations, and the development of our Ethena Risk Portal. Our efforts recently led to Ethena increasing the insurance fund by $10m.
Yieldnest: We have been supporting Yieldnest restaking protocol with risk consultation services since their deployment this year. Yieldnest has a strong Curve alignment and has given us the opportunity to delve into the restaking ecosystem with development of AVS and node operator risk evaluation frameworks.
Defi.money: As a fork of crvUSD, Defi.money has given us the opportunity to develop quantitative tooling that benefits all crvUSD-related products. We work with their team to onboard new and exotic markets across their L2 deployments.
In addition to these active engagements, this year we have worked with Reserve Protocol on a series of RToken risk reviews, Prisma Finance (now Resupply) on LST/LRT risk reviews, and Arcadia Finance on the development of a simulation tool for their collateral onboarding purposes. We are currently working with Entropy from Arbitrum DAO on the Growth Management Committee as risk advisors to strategically allocate protocol treasury reserves.
LlamaRisk has always been 100% funded by our engagements with our protocol partners and we are extremely grateful to be working with the best minds in the business. Their commitment to transparently communicating risks to their users and continued priority on user safety is what makes our work possible. We are committed to keeping access to risk services a public good in our space as we forge the next phase of our industry together.
Agent-based Simulations
Quantitative tooling is an essential part of operational management for DEXs, lending platforms, and decentralized stablecoins to determine optimal protocol parameterization and to predict adverse scenarios that may impact protocol solvency in adverse market scenarios.
We have been developing simulation tools to improve confidence in our recommendations about suitable levels of exposure to particular collateral types based on their historical volatility and liquidity profiles and based on insights about user behaviors. Agent-based simulations allow us to model every actor in a system (borrowers, liquidators, arbitrageurs etc.) and conduct a grid search across parameter configurations to optimize protocol performance in terms of minimizing bad debt, maximizing protocol profit, and minimizing borrower losses.
ArcadiaSim: Arcadia is a margin lending protocol deployed on Base that approached us to co-develop a simulation tool for their V2 launch. We worked closely with their team on a 10-week engagement to deliver optimal parameterization of their initial collateral set which can be used for any future collateral types, including LP tokens.
crvUSDrisk Sim: Building on previous work by Xenophon Labs, Curve Research, and 0xReviews, we developed an advanced simulation tool tailored for the unique LLAMMA liquidation mechanism introduced by crvUSD. We have applied this tool toward recommending optimizations to crvUSD mint markets and for Defi.money, a cross-chain fork of crvUSD.
Caffeine: Caffeine is a proprietary simulation tool we have been developing with scalability and adaptability in mind. It simulates 100's of instances of the Ethereum blockchain efficiently and concurrently and can simulate any EVM smart contract with any sort of agent. The performance enhancements allow us to exponentially increase the number of markets we can support and improve the precision of our analyses.
CurveSim: In addition to our tooling development, we have begun maintaining public repos such as CurveSim, a popular tool for optimizing Curve AMM pools. We are applying our deep knowledge of such tools by actively monitoring and recommending optimizations across a wide set of markets.
We strive for transparency in all of our work, which can be a concern as quantitative evaluations can sometimes be regarded as a black box. Therefore, all of our work involves publication of our methodologies and rationales for our parameter recommendations. Going forward, our goal is to play a leading role with integration teams when establishing markets with our protocol partners and to continuously monitor those markets for enhancements.
LlamaRisk Risk Portal
There exist many great dashboards to gain objective insights about protocol usage. However, the LlamaRisk Risk Portal, unveiled this year, offers a unique value proposition for protocol risk analysis by incorporating opinionated dashboards and simulation models. By opinionated, we mean that we develop methodologies for defining safe conditions for the protocol, such as collateral exposure limits or insurance fund requirements. These are presented as dashboards for convenient and accessible monitoring of protocol health conditions in terms of our quantitative evaluations. Furthermore, our simulation models allow users to experiment with hypothetical conditions to better understand the impact a particular condition may have on protocol health.
Defi.money Risk Portal: The primary purpose of the Defi.money portal is to monitor the current debt from each MONEY market across all supported chains against our recommended debt ceiling, a dynamic value based on evolving liquidity conditions. Defi.money’s strategy is to onboard a multitude of long tail and exotic collateral types, making debt ceiling monitoring of critical importance.
Ethereum Staking Penalty Simulator (ESPS): Many of our partners have significant exposure to LSTs and LRTs, prompting us to create tools for the evaluation of ETH staking risks. The ESPS allows users to make assumptions (e.g. Lighthouse client outage, Eurozone network outage) and observe the severity of validator penalties.
Ethena Risk Portal: This portal was inspired by our previous analysis of the Reserve Fund capitalization requirements. The dashboard includes models to test assumptions such as negative funding rates and slippage loss and the Reserve Fund’s capability to absorb adverse scenarios. It includes a drawdown analysis based worst historical drawdowns of each supported collateral type across each futures exchange to produce a dynamic recommended Reserve Fund value.
Our publicized Risk Portals are just the beginning. We are planning the imminent release of a Curve Risk Portal that showcases market health scores for crvUSD mint markets and LlamaLend markets. Scores are broken down into market health categories (e.g. debt ceiling, collateral ratio, arb efficiency) where users can gain deeper insight into the historical and current health of each category and the rationale for its health score. We are working with the Curve UI team to integrate these scores to the Curve UI.
Our next portal will be for Aave and will apply our collateral exposure methodology to Aave’s markets. This approach combines the globally available liquidity for each collateral type with observed borrower behaviors in the target market to improve the efficiency and accessibility of monitoring safe exposures to each collateral. This dashboard furthers our mission to make risk evaluation a transparent and independently verifiable process, reducing reliance on what may sometimes be perceived as arbitrary recommendations from risk service providers.
Risk Research Publication and Distribution
We have built our reputation on our risk research and evaluations, and we are continuously determined to deliver the highest quality risk assessments in our industry. All of our work is and will always be freely available, as we consider risk publications to be a public good that should be maximally accessible. We have launched our website this year where we now host all of our research publications.
To further the distribution of our research we have a public Telegram group and Twitter where we share our work. You can also subscribe to this substack to receive email notifications of our publications here:
We host biweekly streams on Leviathan News where we do deep dives on our current research topics. To further awareness of our work, we have attended multiple conferences this year such as ETHDenver, ETHcc, and DevCon, where we have joined panel discussions on topics relevant to our work.
We are also constantly looking for opportunities to collaborate on research with other service providers in our industry. In our industry, we are all in it together, so our attitude is that other risk providers and research firms share our common mission and consist of talented individuals who we want to work with. Take, for instance, our recent publication on MPC Security, a joint research piece with Steakhouse Financial. We also regularly collaborate with Chaos Labs in our common engagement to serve Aave and with top names in DeFi risk management in our position on the Ethena Risk Committee (shout out to Blockworks Research who have been great partners for us).
Research Spotlight
LST Pricing Risk Analysis: Balancing Act: LST Pricing Mechanisms for DeFi Lending
Ethena Methodology: Reserve Fund Drawdown Methodology V2
LLAMMA Simulations Methodology: Defi.money Markets Parameterization
Stablecoin Adoption Analysis: GHO Users: Interactions & Patterns
Collateral Exposures Methodology: Debt Ceiling Methodology for crvUSD
Llama Legal Research: EU Regulations, Curve Decentralization Assessment, Coinbase's MiCA-Driven Stablecoin Restrictions
Risk Curation/Strategy Management
Looking for ways to support the growth of native stablecoins of our partner protocols (e.g., crvUSD), we began working with Sturdy Finance and Morpho Finance to design and manage vault strategies (vaults linked). We collaborated with Swiss Stake and C2tP (Convex) to develop solutions for suitable markets and incentivize those markets.
Our existing strategies exclusively use Curve LPs as collateral (wrapped as Yearn vaults on Sturdy and Convex LPs on Morpho) with crvUSD as the borrowable asset. We contributed to smart contracts development for markets and financed code audits. We created public dashboards to monitor vault market activity. We published multiple explainers on important topics regarding the markets, such as the oracle design or interest rate model, prioritizing transparency, and educating users on risks. To date, there have not been any incidents involving our curated vaults that resulted in the loss of user funds.
Going forward, we plan to build on our experience with risk curation by developing tools to monitor and optimize market parameters for our partner protocols. This service will help improve pool returns in AMMs and optimize utilization in lending markets. We aim for maximal transparency on our curation decisions, so users will be able to review historical optimization actions and recommended actions with supporting data on our publicly available Risk Portal.
What’s Next for LlamaRisk?
If we haven’t stressed it enough already, we are immensely grateful to all our supporters, including our protocol partners, our fellow DAO service providers, and our community of DeFi enthusiasts. It’s been an absolute pleasure to be at your service this past year, and we think 2025 will be our best year yet. We’ve laid out the foundation of the skill sets we’ve built and the services we are developing above, so here is a sneak peek of what is in store for the coming year!
We have built our reputation on high-quality, objective risk assessment and have invested a significant amount of time and energy in our team of risk analysts to maintain those high standards. Going forward, we are investing in technology to scale our operation and the ease with which our team can conduct their analyses. At the end of the day, our primary service is to properly advise our protocol partners and to assist in their growth strategy to onboard new assets and continuously assess risk of existing integrations. We accomplish this, not just by our word, but by backing our recommendations with supporting data and conducting our work with transparency as a main focus.
We will be continuing to expand our suite of risk services with Risk Portals that communicate our methodologies for assessing protocol health, especially considering the multitude of integrated assets on our primary partners Curve and Aave. Our portals will share insights about the health of the underlying markets and conveniently express our guidance on setting safe levels of exposure and defining safe conditions. These will often incorporate optimizations based on simulation results and include models for testing hypothetical adverse conditions, as can be seen in our Ethena Risk Portal and Ethereum Staking Penalty Simulator.
With the ceaseless innovations that require continually onboarding additional markets to DEXs, lending platforms, and perpetual futures exchanges, scaling risk services to meet demand is essential. One of our goals for this coming year is to expand on the vault curation experience we have gained toward active parameter management for our partner protocols. A pain point for DEXs like Curve is to adequately monitor and optimize AMM pools and lending markets, which can be permissionlessly deployed. DAO votes can be cumbersome to deploy votes, incur gas costs, and involve timelocks that reduce operational efficiency. We aim to put our tooling and expertise to use as active parameter curators, improving returns for LPs and DAOs, and proactively mitigating adverse scenarios.
Our overall vision is to incorporate these quantitative approaches to support the continuation of our risk evaluation and consultation that has earned us the respect of our partners. We are comprehensive in our research to consider all categories of asset risk, including technology, counterparty, and legal risks. Our legal analyses are recognized as being some of the most diligent in our industry and will continue to be a focus as DeFi and TradFi continue to converge. We see this focus as a necessity to foster the broad legitimacy of DeFi products and to bring our industry to the epicenter of the global financial system.
Therefore the union of qualitative/quantitative risk evaluation with growth services make up the pillars of our services going into 2025. We want to see our protocol partners outpace the competition by capturing market share, seizing opportunities, and optimizing protocol operation - but not at the expense of chasing unsustainable gains with poor risk/reward prospects. Our quest is for resilience, and it is a never-ending practice that requires us to carry the wisdom of previous experience, the awareness of present conditions, and informed judgment about what the future may bring.
Thank you from LlamaRisk for an amazing year and let’s make 2025 the most resilient year yet for the DeFi industry!