Introducing the Edge Oracle Network by Chaos Labs

Transcript

hi everyone thank you for joining me today super super excited to tell you about what we've been building at chaos Labs uh so let's get straight into it many of you may know us as a leader in onchain Risk Management uh we're going to talk about how that led us to building Edge which is our new Oracle protocol so first before we talk about what Edge is let's set it up for how we got here at chaos Labs we've built a platform that does an automated onchain risk management so what does that mean when you're interacting with applications like a GMX Jupiter dydx you have a bunch of parameters that are changing in real time in line with the

underlying market conditions so is there more liquidity is there less liquidity is there a high concentration of Wallets on the exchange what does volatility look like all of these need to go in and be computed every second in order to protect these applications from the Ever Changing crypto markets now we've been at this for a few years and to date uh the platform has secured close to a trillion dollars in notional volume uh today uh it's about 25 billion at right now in in terms of loans across the different lending applications that we secure uh We've secured over a 100 billion in loans over the years and we also do incentive optimization having having distributed

over 35 million in incentives across different ecosystems so really like this actually is not a complete list of all of the teams that we have the privilege of working with we're really lucky to work with the leaders across all major D5 protocols and instruments so in reaking we have uh the privilege of working with ethery lending uh work with a on the per side Dy DX GMX Jupiter and then stable coins we have liquidy uh and a bunch more that we're lucky to call our partners now the core of what we've

built over the past 3 years which extends Edge protocol is that we want to enhance Economic Security and provide realtime risk management for these decentralized applications the core of what we do tries to give you the same guarantees andur es that you would have when you're interacting with a centralized Financial instrument in terms of the risk that we're doing but because everything is being executed in an asynchronous blockchain environment all of The Primitives need to be built from the ground up in order to support this so if you believe that the future of Finance won't be centralized which I'm sure you do otherwise you wouldn't be here at token it's not going to happen without Best in Class risk uh and Oracle

infrastructure to support these applications and secure user funds and this is what brought us to building Edge protocol Edge protocol has three core components the first is probably what you're most familiar with it's a price Oracle right they've existed since the beginning of Defi and we're taking it and putting a new spin on it giving all of the partner protocols and users who adopt this extra value the second is risk oracles so the first few slides we spoke about the risk platform we built it existed in a siloed web 2 infrastructure and now we're putting all of that data as a stream onchain so applications for the first time in defi can update in real time and

the last is proofs typically when you hear about a proof Oracle it's in the context of proof of Reserve but we're extending this concept to prove any offchain arbitrary data whether it's that the collateral that's backing your stable coin exists or the results of the US selection and packaging this into something cohesive and easy to use for the applications that are pushing Innovation on chain so we started as this SAS platform that was managing risk in real time for applications why did we build Edge so like a lot of the things that we do at chaos the number one driver for all of this was demand for customers so let me explain to you not only how risk works

for a and for GMX and for dydx but for the industry in its entirety right so until today and still today for applications that don't use us all risk management is done manually okay this sounds crazy because crypto markets are more volatile and dangerous than traditional markets and traditional markets are automated but in crypto we still weren't there so that means when the market is swinging you'll have a bunch of people on a telegram group a Discord a zoom call scrambling to try and understand what to do they'll create and craft a solidity payload or whatever the programming language that's native to the blockchain that they're deployed on and have to deploy it typically the lead time between when we

understand that a change needs to be made to a decentralized system to when it actually propagates onchain was 72 to 96 hours so this was something that was unacceptable uh for these applications and for the users and it came with really strong demand from all the applications that we work with the second core principle of why we built Edge is really this understanding that risk and price are are inextricable you can't talk about one without talking about the other when we started chaos Labs the belief was that the most important thing that we had to take care of was understanding liquidity and Market structure right primarily Market risk um you have Bitcoin you have ethereum and you have salana but you have hundreds and thousands of other

tokens and very quickly the depth of these markets falls off making it Prime candidate for manipulation and this is where we spent the first 2 years but every single day we kept on getting pulled into more and more war rooms uh with respect to oracles people wanted to list new assets they wanted to list lsts they wanted to list lrts they wanted to list stable coins with various backings how do you price this right how do you price how do you handle duration risk with with an LST that has seven days to Redemption suddenly we found ourselves doing a ton of financial engineering and Advising these teams on how to compose their feed so that's really where the risk and price thesis came together and the second which connected to this is we

weren't building the oracles but we were definitely in every single war room when something was wrong most of the exploits would have to do with oracles it's usually not a misprint it's usually not some infrastructure going down it's actually an economic exploit so it could be that the Market's being manipulated or it could be that you're being Arbitrage and your application has become a pristine destination for toxic flow and we're there to help teams understand this and mitigate this but there was this huge disconnect we weren't designing the oracles we weren't building them and we were trying to put in all of these breaks and safeguards in place uh to make them not vulnerable uh to all of these different Market exploits and

attacks so the rise of edge protocol uh we've actually been live for three months right and last week uh we came out of stealth the partner that we've been working with is Jupiter it's the largest decks in all of salana and over the past 3 months Jupiter in itself has done over 60% of the total per volume all of that per volume was secured by Edge so in the past 3 months we've processed over 30 billion uh in transactional volume if you've placed a trade on Jupiter it's been settled by our pricing now kind of run of thee Mill pricing is is really important to be kind of stable and consistent but often times these oracles and different

mechanisms fall apart in the moments that you need them most we had one of the worst single day Market drops uh in recent years on August 5th with over 500 million liquidations that were processed on Jupiter also by our Oracle so really kind of this coming out of self mode for chaos is a little bit different than some of the other announcements that that you see when teams talk about their intention to do something we're actually sharing with the world on this stage today what's already live and available uh to the industry at home now now we're going to speak exactly we started in this world where we were doing risk understood that we needed to do oracles but where do

they meet right so we have this thesis that that price and risk are inextricable what does that look like in practice so what it looks like in practice is integrating risk into the Oracle itself if you think about the first generation of oracles they were great and they brought us to where they are today but they have one fundamental issue they serve as these reliable pipes from web 2 to web 3 and what they provide to you is an SLA and the SLA says hey I'm going to give you the data that comes out of this API I don't understand the data I don't I'm not I don't understand how it affects the application that's consuming it whether it's a lending application a

stable coin or a perex but I'll provide it for you and you can figure it out and this does not scale right because this requires from teams to become experts in the data itself and be opinionated on a stack that they have very little control on so the first thing we set out to do was understand that the price feed needs risk management integrated into it the second is cross chain and offchain intelligence right so if our goal is to embed a risk engine into these price feeds it's not only enough for us to understand what's happening in your ecosystem or within your application when we need to understand the broader Market liquidity otherwise how else are we going to know if this asset or if this Market is

susceptible to Market manipulation we'll speak about the proofs towards the end which we recently announced a collaboration with wintermute where we're going to be powering their us election prediction markets that are set to go live in the coming days and we'll talk about proof separately but what's important for all three of these whether it's price risk or proofs is that it needs to be easy to use right like we understand that teams want to innovate fast they need to move fast and we can't be requesting from them multi-month Integrations so we've also built that with this in mind we'll start with price and then we'll roll out to the things which are completely novel and new right so first of all why are price feeds important

right we're actually reminded of this almost every single week unfortunately right there are different Market manipulation attacks there are different kind of Arbitrage plays where folks are dumping toxic flow into applications and hurting LPS um and it's just a story that we hear over and over again the biggest one uh or at least in the salana ecosystem was the mango markets manipulation attack by Avi Eisenberg um but it's happened in compound and it's happened some of it's happened with CRV uh in some of the largest assets that you can imagine so first of all when things are steady state all is good uh it it might seem like these things always work but when things get volatile when there's a

liquidity crunch when you move away from Bitcoin ethereum and salana and start trying to price these mid to low market cap assets things can fall apart very very very quickly now Edge addresses this like we said by embedding the risk model inside so instead of providing a single data point of what the price is we can also provide a price manipulation score right and that price manipulation score can be used by applications however they see the best way to integrate it and what we're seeing most is a kill switch right so if our algorithms are saying hey this is a 9.2 out of 10 on the price manipulation scale applications take this and understand that it's time to

pause the markets until liquidity improves broadly in the ecosystem this could be the difference between an application that lives or Falls like mango Market did with a $200 million exploit now all of this is like I always like to tell the team you know when we ship product and if nobody's using it it's like a a tree falling in a forest if no one's there to see it that it even happen right so we need to get this in the hands of developers and that's why we've developed a super flexible graphql endpoint so we're not forcing engineers and teams to adhere and rewrite their smart contracts to fit our schema they can specify exactly which data in which structure they need from us and our

server will create it on the Fly this is a big lock right because for someone to use us and this is why it was very fast with Jupiter and some of the other partners that we're going to talk to out of the gate our application met their needs uh in terms of the interface so this is something new as well now we spoke about price we said that Jupiter integrated today we're also proud to announce that GMX is live with our risk oracles GMX is a Pioneer uh In Perpetual uh dexes on arbitrum and now expanding to other ecosystems and they've really seen all of the issues that all of these dexes face especially in pushing the boundaries in the type of

assets um that they list on the market and they they really understood this uh pain point from day Zero we're keen on integrating it and today we're live so what is a risk Oracle remember remember in the earlier slides I initially said we have this platform uh which is public which would public as a result of simulations the right configuration for financial instrumental Exchange in real time but in the past teams had to go and copy and paste all of these values uh craft a payload get it audited maybe go through governance and finally landed on chain and meant by definition that every single parameter within their application was almost

always stale okay now as a risk manager for us the Northstar is before we talk about kind of uh increasing flow in volumes is to ensure that there's no bad debt so what happens across the industry when you know that there's a 72 to 96h hour lag time and you don't have the ability to update uh in line with real-time market conditions you take these extra buffers okay and these extra buffers they culminate in worse execution and higher fees you're overpricing volatility you're overpricing liquidity and generally overpricing risk because you want that margin of error right in case something goes sideways now one of the things that we talk about often and application

developers understand but it's something that isn't quite kind of known in the industry is we're talking about scaling we're talking about app chains and l2s and l3s and block space but fundamentally for all of the users on these defi platforms if your execution is worse which is the case because folks that don't use risk oracles have sale parameters they're always going to have worse execution than their centralized counterparts and we'll never bridge that Gap now for the announcement that came out last week we're serious about getting any offchain data onchain in a secure Way full of integrity and that's why we launch prediction markets prediction Market oracles are already

live with wintermute and will power the prediction market for the US 2024 elections we wrote a long post about this and I'm running short on time so whoever is interested I'm going to be in the back and if you want to talk about prediction markets and resolving real world events with AI we'd love to continue the discussion for anyone interested in Edge we're on Twitter we're on telegram feel free to reach out uh I'll be here with the team thank you for your time today and I was glad to tell you about Edge thank you