Summary
A proposal to:
- Increase weETH’s supply cap on Aave’s Ethereum deployment.
- Increase wstETH’s supply cap on Aave’s Polygon deployment.
Motivation
weETH (Ethereum)
weETH has reached 100% supply cap utilization on Ethereum, and its borrow cap is at 40% capacity.
Supply Distribution
Most top weETH suppliers engage in a combination of borrowing WETH and maintaining deposit-only positions. The largest weETH supplier represents a significant portion of the total market, though supply is still distributed across multiple wallets. The largest open positions generally have low liquidation risk, as the supplied and borrowed assets are either identical or closely correlated ETH derivatives.
Overall, WETH represents 87.43% of the value borrowed against weETH.
Recommendation
Given liquidity, users’ behavior, and the correlation of the borrowed assets, we recommend raising the supply cap to 840,000 weETH.
wstETH (Polygon)
wstETH has reached 96% supply cap utilization on Polygon, and its borrow cap is at 4% capacity.
Supply Distribution
Most top wstETH suppliers borrow WETH, with some also borrowing stablecoins like USDC. The largest wstETH supplier represents a significant proportion of the total market, with supply notably concentrated in the top few positions. The largest open positions have low liquidation risk due to the close correlation between wstETH and WETH.
Overall, WETH represents 94.71% of the value borrowed against wstETH.
Recommendation
Given the limited on-chain liquidity, users’ behavior, and the correlation of the borrowed assets, we recommend raising the supply cap to 8,800 wstETH.
Specification
| Chain | Asset | Current Supply Cap | Recommended Supply Cap |
|---|---|---|---|
| Ethereum | weETH | 790,000 | 840,000 |
| Polygon | wstETH | 7,700 | 8,800 |
Next Steps
We will move forward and implement these updates via the Risk Steward process.
For transparency, we aim to execute the risk steward transaction on September 4th at 19:00 pm GMT
Disclaimer
Chaos Labs has not been compensated by any third party for publishing this ARFC.
Copyright
Copyright and related rights waived via CC0