# \[ARC\] - Chaos Labs Supply and Borrow Cap Updates - Aave V3 Polygon and Arbitrum - 2023.02.07

**URL:** <https://governance.aave.com/t/arc-chaos-labs-supply-and-borrow-cap-updates-aave-v3-polygon-and-arbitrum-2023-02-07/11605>\
**Category:** Risk\
**Created:** [February 7, 2023, 11:34pm UTC](https://governance.aave.com/t/arc-chaos-labs-supply-and-borrow-cap-updates-aave-v3-polygon-and-arbitrum-2023-02-07/11605 "2023-02-07T23:34:31Z")\
**Posts on this page:** 9\
**Page:** 1

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**Author:** ![ChaosLabs](https://dub1.discourse-cdn.com/flex013/user_avatar/governance.aave.com/chaoslabs/32/6850_2.png) [@ChaosLabs](https://governance.aave.com/u/ChaosLabs)\
**Post date:** [February 7, 2023, 11:34pm UTC](https://governance.aave.com/t/arc-chaos-labs-supply-and-borrow-cap-updates-aave-v3-polygon-and-arbitrum-2023-02-07/11605/1 "2023-02-07T23:34:31Z")

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## Simple Summary

A proposal to adjust five (11) total risk parameters, including Supply Cap and Borrow Cap, across seven (7) Aave V3 Polygon and Arbitrum assets.

## Motivation

The objective of this proposal is to recommend updated supply and borrow caps for V3 assets that have reached over 85% utilization of either cap. The recommendations provided in this proposal were derived using Chaos Labs’ [Updated Supply and Borrow Cap Methodology](https://governance.aave.com/t/chaos-labs-updated-supply-and-borrow-cap-methodology/11602).

Below are the data and considerations for the assets and recommended caps:

### Polygon

**DAI, USDC, USDT**

We propose updating the borrow caps for DAI, USDC, and USDT. The new proposed caps are set to allow growth on V3 and room for the migration of positions from V2. The image below shows the total value in borrows for the said assets

 ![Screen Shot 2023-02-10 at 4.14.38 PM](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/9/9a451c4058fd69d81443bb253a30bd4bb90ac5e4.png)

**BAL**

 ![Screen Shot 2023-02-08 at 12.56.38 AM](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/b/b3477dd43ff43a463c5229e9e83ff93ffb09caf5.png)

Given the calculation below, we recommend increasing the supply cap of BAL to 569,200, doubling the current supply. As the borrow cap is to be updated in this [AIP](https://app.aave.com/governance/proposal/151/), we do not recommend a change.

 ![Screen Shot 2023-02-08 at 4.22.42 AM](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/f/f8a19ad872a4868b6d4e3afffc671c007eeb875c.png)

### Arbitrum

**WETH**

 ![Screen Shot 2023-02-08 at 12.53.15 AM](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/5/51a9d42b4142efd10e87fab35b1bd8d0fa40ecc6.png)

Given the calculation below, we recommend increasing the supply cap of WETH to 35,280, doubling the current supply. As the current borrow cap is at \<33% utilization, we do not recommend updating it.

 ![Screen Shot 2023-02-08 at 4.23.08 AM](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/5/559d78713c73d7cecf4df9947f65f0b8beeb41fe.png)

**LINK**

 ![Screen Shot 2023-02-08 at 12.52.46 AM](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/9/907cf563efb7f7e42e1ee55ae1661e4324827e41.png)

Given the calculation below, we recommend increasing the supply cap of LINK to 676,980, doubling the current supply. As the current borrow cap is at \<10% utilization, we do not recommend updating it.

 ![Screen Shot 2023-02-08 at 4.23.21 AM](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/a/ad3e5eb9079af20235ff6b4265a0c5bc5076e15f.png)

## Recommendations

### Polygon

| | Current Supply | Current Supply Cap | Recommended Supply Cap | Current Borrow | Current Borrow Cap | Recommended Borrow Cap | notes |
| --- | --- | --- | --- | --- | --- | --- | --- |
| BAL | 284,600 | 284,600 | 361,000 | 136,400 | 256,140 | NO CHANGE | supply cap was modified from our original analysis to address Gauntlet’s recommendation) |
| EURS | 2,060,000 | 2,000,000,000 | 4,000,000 | 728,530 | 728,530 | 947,000 | Recommendation provided by Gauntlet |
| DAI | 5,680,000 | 2,000,000,000 | 45,000,000 | 3,160,000 | 3,860,000 | 30,000,000 | |
| USDC | 35,590,000 | 2,000,000,000 | 150,000,000 | 18,600,000 | 30,680,000 | 100,000,000 | |
| USDT | 5,940,000 | 2,000,000,000 | 45,000,000 | 4,870,000 | 5,060,000 | 30,000,000 | |

### Arbitrum

| | Current Supply | Current Supply Cap | Recommended Supply Cap | Current Borrow | Current Borrow Cap | Recommended Borrow Cap |
| --- | --- | --- | --- | --- | --- | --- |
| LINK | 338,490 | 350,000 | 677,000 | $763,400 | 20,427 | NO CHANGE |
| ETH | 17,640 | 20,300 | 35,280 | 3,663 | 11,165 | NO CHANGE |

## Next Steps

We invite a community discussion around the proposed parameter updates and will follow up with a Snapshot vote in 5 days, barring community objection.

---

<div class="post-metadata">

**Author:** ![Pauljlei](https://dub1.discourse-cdn.com/flex013/user_avatar/governance.aave.com/pauljlei/32/3488_2.png) [@Pauljlei](https://governance.aave.com/u/Pauljlei)\
**Post date:** [February 10, 2023, 4:01pm UTC](https://governance.aave.com/t/arc-chaos-labs-supply-and-borrow-cap-updates-aave-v3-polygon-and-arbitrum-2023-02-07/11605/2 "2023-02-10T16:01:09Z")

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Thanks, @ChaosLabs. Gauntlet’s analysis yielded different results (mostly higher caps). In order to reduce governance fatigue, we will not offer another set of options to the community. However, we did want to flag the BAL supply cap increase.

The recommended BAL supply cap of 569,200 above represents ~78% of circulating supply on Polygon [chain](https://polygonscan.com/token/0x9a71012b13ca4d3d0cdc72a177df3ef03b0e76a3). That represents a meaningful concentration risk for the Aave Polygon v3 market. Under [Gauntlet’s borrow and supply cap methodology](https://governance.aave.com/t/gauntlet-methodologies-borrow-and-supply-cap/11487), even our [Aggressive](https://governance.aave.com/t/gauntlet-methodologies-borrow-and-supply-cap/11487#:~:text=Our%20aggressive%20recommendation%20(%26%20ETH%20mainnet)%20framework%20is%20summarized%20below.) recommendation would set the max amount of BAL at 361k. If Chaos moves forward with recommending an increase to BAL’s supply cap, we recommend no cap larger than 361k.

We’d note that there are several assets on this list that Gauntlet would recommend increasing caps for, but _only if the community agrees on an Aggressive assumption_. The community has not yet decided on a Conservative vs. Aggressive strategy, so we ask that the community provides input on [this thread](https://governance.aave.com/t/arc-gauntlet-borrow-supply-cap-updates-for-aave-v3-op-and-aave-v3-avax-2023-01-27/11488).

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<div class="post-metadata">

**Author:** ![ChaosLabs](https://dub1.discourse-cdn.com/flex013/user_avatar/governance.aave.com/chaoslabs/32/6850_2.png) [@ChaosLabs](https://governance.aave.com/u/ChaosLabs)\
**Post date:** [February 10, 2023, 9:59pm UTC](https://governance.aave.com/t/arc-chaos-labs-supply-and-borrow-cap-updates-aave-v3-polygon-and-arbitrum-2023-02-07/11605/3 "2023-02-10T21:59:03Z")

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We have updated the proposal above to incorporate our recommendations for increased borrow caps for DAI, USDC, and USDT on Polygon. The recommended caps are designed to allow growth on V3 and room for the migration of positions from V2.

> [@Pauljlei](#):
>
> If Chaos moves forward with recommending an increase to BAL’s supply cap, we recommend no cap larger than 361k.

In addition, we updated the recommendation for the BAL supply cap to incorporate the above recommendation and added Gauntlet’s recommendation for an increased borrow cap for EURS (increasing the borrow cap to 947,000).

We plan to utilize the [fast-track](https://governance.aave.com/t/arc-v3-supply-borrow-cap-management-fast-track-process/8045) process for increasing borrow caps and will proceed to post an AIP at the beginning of next week, barring any community concerns.

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**Author:** ![sakulstra](https://dub1.discourse-cdn.com/flex013/user_avatar/governance.aave.com/sakulstra/32/2002_2.png) [@sakulstra](https://governance.aave.com/u/sakulstra)\
**Post date:** [February 13, 2023, 11:42am UTC](https://governance.aave.com/t/arc-chaos-labs-supply-and-borrow-cap-updates-aave-v3-polygon-and-arbitrum-2023-02-07/11605/4 "2023-02-13T11:42:33Z")

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What’s the rationale behind keeping these massive 2B supply caps?  
I see that it’s like that on pools, but the approach on Ethereum v3 seems more reasonable to me (aka caps, with good margin for growth, without being overly excessive as it’s easy enough to update in a future proposal).

---

<div class="post-metadata">

**Author:** ![ChaosLabs](https://dub1.discourse-cdn.com/flex013/user_avatar/governance.aave.com/chaoslabs/32/6850_2.png) [@ChaosLabs](https://governance.aave.com/u/ChaosLabs)\
**Post date:** [February 13, 2023, 4:03pm UTC](https://governance.aave.com/t/arc-chaos-labs-supply-and-borrow-cap-updates-aave-v3-polygon-and-arbitrum-2023-02-07/11605/5 "2023-02-13T16:03:24Z")

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Thanks @sakulstra for the comment.

In this proposal, we originally focused on highlighting and updating caps **nearing their limits** , rather than a wide change of parameters.  
We support the approach of setting caps “with a good margin for growth, without being overly excessive” and have been implementing it in our proposal.

To accommodate this comment in the upcoming proposal, we have updated the recommendations to reduce the supply caps for DAI, USDC, USDT, and EURS such that the new cap can absorb migrating positions from V2 while allowing additional organic growth.

---

<div class="post-metadata">

**Author:** ![ChaosLabs](https://dub1.discourse-cdn.com/flex013/user_avatar/governance.aave.com/chaoslabs/32/6850_2.png) [@ChaosLabs](https://governance.aave.com/u/ChaosLabs)\
**Post date:** [February 15, 2023, 7:23pm UTC](https://governance.aave.com/t/arc-chaos-labs-supply-and-borrow-cap-updates-aave-v3-polygon-and-arbitrum-2023-02-07/11605/6 "2023-02-15T19:23:27Z")

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We have published this [AIP-155](https://app.aave.com/governance/proposal/?proposalId=155) for community members to vote on, starting in 24h

Thank you in advance for your participation in the vote.

> **[Aave - Open Source Liquidity Protocol](https://app.aave.com/governance/proposal/?proposalId=155)**
>
> Aave is an Open Source Protocol to create Non-Custodial Liquidity Markets to earn interest on supplying and borrowing assets with a variable or stable interest rate. The protocol is designed for easy integration into your products and services.

---

<div class="post-metadata">

**Author:** ![Gauntlet](https://dub1.discourse-cdn.com/flex013/user_avatar/governance.aave.com/gauntlet/32/4064_2.png) [@Gauntlet](https://governance.aave.com/u/Gauntlet)\
**Post date:** [March 28, 2023, 12:24am UTC](https://governance.aave.com/t/arc-chaos-labs-supply-and-borrow-cap-updates-aave-v3-polygon-and-arbitrum-2023-02-07/11605/7 "2023-03-28T00:24:41Z")

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Updated Recommendation for BAL on Polygon V3:

- No increase to the Supply Cap. The existing Supply Cap represents 63% of BAL circulating supply on Polygon. Since our last recommendation, the circulating supply of BAL on Polygon has decreased.

- Increase the Borrow Cap from 256k to 290k. Increasing the borrow cap is supported by the number of tokens held by top wallet holders and circulating on Polygon.

---

<div class="post-metadata">

**Author:** ![WintermuteGovernance](https://dub1.discourse-cdn.com/flex013/user_avatar/governance.aave.com/wintermutegovernance/32/9926_2.png) [@WintermuteGovernance](https://governance.aave.com/u/WintermuteGovernance)\
**Post date:** [March 28, 2023, 12:49am UTC](https://governance.aave.com/t/arc-chaos-labs-supply-and-borrow-cap-updates-aave-v3-polygon-and-arbitrum-2023-02-07/11605/8 "2023-03-28T00:49:42Z")

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We’d be interested to know if Gauntlet tracks the behaviour of borrowers for BAL?

Given the likes of Aura which offer a high yield on BAL/ETH BPT, is it fair to assume that borrowers are bridging to ETH and depositing to Aura? If so, increasing the borrow cap would likely further reduce the circulating supply on Polygon.

---

<div class="post-metadata">

**Author:** ![Llamaxyz](https://dub1.discourse-cdn.com/flex013/user_avatar/governance.aave.com/llamaxyz/32/2044_2.png) [@Llamaxyz](https://governance.aave.com/u/Llamaxyz)\
**Post date:** [March 28, 2023, 6:17pm UTC](https://governance.aave.com/t/arc-chaos-labs-supply-and-borrow-cap-updates-aave-v3-polygon-and-arbitrum-2023-02-07/11605/9 "2023-03-28T18:17:31Z")

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Hi @WintermuteGovernance,

Please have a read of this proposal here which seeks to change the BAL interest rate.

> [@\[ARFC\] BAL Interest Rate Upgrade](https://governance.aave.com/t/arfc-bal-interest-rate-upgrade/12423):
>
> title: [ARFC] BAL Interest Rate Upgrade Author: @Llamaxyz Dated: 2023-03-22 Summary This publication proposes implementing the next step in the BAL interest rate increase. Abstract Previously, Aave implemented the first stage of increasing the BAL borrowing rate across all deployments. This was performed with the intention of monitoring the market response and revising the rates higher at a later date. This publication presents the next BAL interest rate increase to Aave for discussions…

An extract applicable to the earlier comment is shown below:

| | Description | APY | TVL | Network |
| --- | --- | --- | --- | --- |
| Aura Finance (Aura Gauge) | B-80BAL-20WETH / auraBAL | 58.21% | $21,380,000 | Ethereum |
| Tetu (Balancer Gauge) | B-80BAL-20WETH / tetuBAL | 88.77% | $10,220,000 | Polygon |
| Stake DAO (Balancer Gauge) | B-80BAL-20WETH / sdBAL | 18.25% - 45.35% | $637,221 | Ethereum |

We have also just published this proposal to focus the communities discussion on the BAL reserve on Polygon v3. Let’s pivot the discussion across to the thread linked below.

> [@\[ARFC\] Polygon v3 BAL Supply & Borrow Cap Increase](https://governance.aave.com/t/arfc-polygon-v3-bal-supply-borrow-cap-increase/12505):
>
> title: [ARFC] Polygon v3 BAL Supply & Borrow Cap Increase author: @Llamaxyz - @TokenLogic created: 2023-03-28 Summary This publication seeks to increase the BAL Supply and Borrow Caps on Polygon v3 Liquidity Pool. Abstract The BAL Reserve Supply Cap is 85.00% and 96.24% utilised on Polygon v3. Both have been trending higher over time. This publication presents a modest increase to the SupplyCap from 361,000 units to 400,000 units, representing an overal increase of 10.8%. The utilisatio…