Summary
This proposal recommends reducing the supply and borrow caps on Aave V3 Scroll to reflect lower utilization and decreased liquidity.
Motivation
The cap utilization of all assets except SCR has decreased significantly since Scroll TGE on October 22, 2024. The chart below plots the supply and borrow cap utilization of each asset listed on Scroll, with the thickness of the line representing the USD value of supplies and borrows, respectively.
Decreasing utilization has mirrored the broader trend on Scroll, which has faced a sharp drop in TVL in recent months.
This has also been reflected in liquidity, which is our primary reason for recommending reduced caps. Deteriorating DEX liquidity limits liquidators’ ability to process liquidations efficiently. weETH’s liquidity is presented below as an example.
Liquidity in the WETH-USDC pair has also deteriorated following a spike ahead of TGE.
While we do not observe significant VaR in the current cap setup, we prefer to be proactive in limiting exposure should the downward trend continue.
Recommendation
We recommend setting each new supply cap to 3x the current supply, rounded up, allowing room for growth while mitigating potential future risks. We recommend a more substantial decrease to weETH’s supply cap given its size relative to WETH ($70M weETH supplied compared to $65M WETH supplied).
Given the new supply caps, we recommend setting USDC and WETH’s borrow caps according to UOptimal. For SCR and wstETH, we recommend using the same methodology as for supply caps; for weETH, we do not recommend changes as its borrow cap is already set to 1.
Specification
The following table shows the recommended changes:
| Asset | Deployment | Current Supply Cap | Rec. Supply Cap | Current Borrow Cap | Rec. Borrow Cap |
|---|---|---|---|---|---|
| SCR | Scroll | 720,000 | - | 180,000 | 12,000 |
| USDC | Scroll | 75,000,000 | 30,000,000 | 45,000,000 | 27,000,000 |
| weETH | Scroll | 46,500 | 35,000 | 1 | - |
| WETH | Scroll | 109,000 | 60,000 | 98,000 | 54,000 |
| wstETH | Scroll | 30,000 | 10,000 | 12,000 | 1,000 |
Next Steps
We will move forward and implement these updates via the Risk Steward process.
Disclaimer
Chaos Labs has not been compensated by any third party for publishing this ARFC.
Copyright
Copyright and related rights waived via CC0