Key Observations

1. Collateral & Liquidity Management

• Stablecoin Collateralization: Level Money uses stable tokens (e.g., USDC) for collateral instead of volatile assets. This choice minimizes the risk of economic security loss due to market fluctuations.

• AAVE Liquidity Provisioning: USDC is deposited into AAVE, with receipt tokens wrapped and used as collateral on Symbiotic.

• Restaking on Symbiotic: Wrapped AAVE LP tokens are locked in Symbiotic, where funds are delegated to operators. The protocol’s custom logic ensures that slashed funds return to reserves rather than being burned, preserving solvency.

• Liquidity Targets: There is an active plan to boost liquidity in Curve pools (targeting $10–20 million), which is essential for supporting large redemptions with minimal slippage.

2. Slashing Mechanism & Operator Oversight

• Custom Slashing Logic: Misbehaving operators will have their delegated funds reallocated among non-slashed counterparts, which helps secure the protocol’s collateral base.

• Delegation Process: While the delegation framework provides security, further clarity on liquidity utilization by operators would enhance transparency.

3. Governance & Security

• Immutable Smart Contracts: Level Money’s contracts are non-upgradable, ensuring no single party can alter core protocol logic.

• Admin Multisig & Cold Storage:

  • An eight-key multisig (5-of-8 required) controls critical administrative functions.

  • Keys are stored in cold storage (with core team members using Ledger devices) and are geographically distributed.

  • Movements of funds (e.g., transferring reserves between contracts) require being placed on an allow list and the consensus of external signers.

• Signing Protocol: Transactions are signed using dedicated devices and undergo manual cross-checks to mitigate risks such as Radiant-style attacks (i.e., the type of attack recently observed on the Radiant protocol).

4. Redemption Process & Liquidity Considerations

• Dual-Phase Redemption: LevelUSD and staked LevelUSD (slvlUSD) redemptions occur in separate transactions, with a delay designed to mitigate flash loan risks.

• Instant Redemption for Liquidators: Whitelisted liquidators have instant redemption rights for lvlUSD (but not slvlUSD, which has a 7-day cooldown). Non-whitelisted users must rely on Curve liquidity for USDC conversion.

• Documentation: While most contract addresses are public, some (e.g., the yield manager address) are pending updates in documentation.

Risk Considerations & Recommendations

Below are key risks to keep an monitor:

1. Contract Monitoring:

• AAVE Yield Manager Contract: 0x9df5680d8dc866ad154dc07a7dc1c418dc60c96c

• Eigenlayer Reserve Manager Contract: 0x7b2c2c905184cef1fabe920d4cbea525acaa6f14

• These should be actively monitored for performance and security risks.

2. Liquidity Depth & Exit Risks:

• The goal of $10M–$20M in Curve liquidity is ambitious but may not be sufficient for extreme redemption events. A contingency plan for deeper liquidity provisioning (e.g., secondary lending markets or market-maker agreements) would be beneficial.

3. Counterparty Exposure & Expansion Risks:

• Current reliance on AAVE minimizes counterparty risk, but future integrations with additional lending markets could introduce new vulnerabilities. Any expansion should be approached cautiously, with robust due diligence on protocol security and governance structures.

Personal View & Recommendations

• Positive Outlook: We appreciate Level Money’s overall approach, particularly its use of immutable, non-upgradable contracts, which supports a truly decentralized and secure protocol.

• Monitoring Key Contracts:
  To effectively control the risk profile of Level Money, closely monitor:

  • AAVE Yield Manager Contract: 0x9df5680d8dc866ad154dc07a7dc1c418dc60c96c

  • Eigenlayer Reserve Manager Contract: 0x7b2c2c905184cef1fabe920d4cbea525acaa6f14

• Future Counterparty Risk:
  While the current focus on AAVE limits counterparty exposure, there is potential risk if Level Money starts integrating with additional lending protocols. Diversifying to protocols beyond AAVE may introduce new counterparty risks that require close scrutiny.

Conclusion

Level Money has built a well-structured, decentralized framework for USDC restaking, backed by strong collateralization practices, a resilient slashing mechanism, and immutable smart contracts. The combination of stablecoin collateral, Symbiotic restaking, and non-upgradable governance minimizes systemic risks while maintaining a sustainable yield model.

However, liquidity depth, contract security, and counterparty expansion risks should remain key focus areas. Ongoing monitoring of the AAVE Yield Manager and Eigenlayer Reserve Manager contracts, as well as a contingency strategy for deepening liquidity, will be essential for long-term protocol stability.

Arkis is using lvlUSD fundamental oracle to get the price of an asset with a direct redemption mechanism used to liquidate an asset back to stablecoins. 

Arkis's research team has determined that there are sufficient mechanisms in place to access, price, and establish a robust liquidation process for assets. As a result, Arkis is introducing lvlUSD as a collateralizable asset within the Arkis platform. However, staked lvlUSD will not be included due to the redemption cooldown.