Summary
A proposal to:
- Increase USDT’s borrow cap on Aave’s V3 Optimism main instance.
- Increase cbBTC’s borrow cap on Aave’s V3 Base main instance.
USDT (Optimism-Main)
USDT has reached 70% supply cap utilization and 100% borrow cap utilization.
Borrow Distribution
The borrow distribution of USDT does not pose a significant risk. All top positions are collateralized with highly liquid assets, such as WETH and WBTC. Additionally, each position maintains a high health score and is actively managed, which further minimizes the risk of liquidation.
As shown in the chart below, WETH and WBTC account for nearly 80% of the collateralized assets, further demonstrating that the collateralized assets for USDT are highly liquid.
Supply Distribution
The supply distribution of USDT is also balanced. The top position holds approximately $1.8 million worth of USDT, which represents 10.3% of the total market supply of $17.4 million, thus this does not raise any concentration concerns. Additionally, the top supply position has a health score of 3.7, further reducing the risk.
Moreover, there exists just $1.53M of primarily WETH and WBTC debt against the total market supply of $17.4M, indicating minimal utilization as a collateral asset.
Liquidity
USDT’s liquidity paired with its most popular collateral asset, WETH, has been somewhat volatile. Currently, a 500 WETH for USDT swap can be completed under 1% slippage, indicating that the largest USDT borrow positions could still be efficiently liquidated.
Recommendation
Given user behavior and on-chain liquidity, we recommend increasing the borrow cap to 23M. This increase is backed by Chaos Labs’ risk simulations, which consider user behavior, on-chain liquidity, and price impact, ensuring that the higher cap does not introduce additional risk to the platform.
cbBTC(Base-Main)
cbBTC has reached 94% of its borrow cap utilization while its supply cap is just 15% utilized.
Borrow Distribution
The borrowing of cbBTC is fairly distributed, with none of the top borrowers showing signs of liquidation risk. The top position holder uses WETH ($11.46 Million) as collateral to borrow cbBTC ($8.41 Million). Although WETH and cbBTC are not directly correlated, both assets are highly liquid on Base, reducing the overall risk. Additionally, this user is actively managing their position, reducing their liquidation risk.
The remaining borrow positions have relatively small borrow amounts, so they do not raise significant concerns.
Supply Distribution
The largest supplier has provided approximately $11.1 million worth of cbBTC. However, given the total supply of cbBTC on Aave V3 Base is $69.19 million, this top supplier represents only 16% of the total supply. Therefore, we do not consider this a concentrated position that warrants concern.
Additionally, the supplier’s position has a high health factor of 4.48, further reducing the risk of liquidation.
Liquidity
WETH-cbBTC DEX liquidity remains strong, with an 8K WETH for cbBTC swap able to be completed for less than 5% slippage. This indicates that the largest cbBTC borrow position could be efficiently liquidated.
Recommendation
Given user behavior and on-chain liquidity, we recommend double the borrow cap. This increase is backed by Chaos Labs’ risk simulations, which consider user behavior, on-chain liquidity, and price impact, ensuring that the higher cap does not introduce additional risk to the platform.
Specification
| Chain | Instance | Asset | Current Supply Cap | Recommended Supply Cap | Current Borrow Cap | Recommended Borrow Cap |
|---|---|---|---|---|---|---|
| Optimism | Main | USDT | 25,000,000 | - | 16,000,000 | 23,000,000 |
| Base | Main | cbBTC | 5,000 | - | 160 | 320 |
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