Summary
A proposal to:
- Increase cbBTC’s supply and borrow cap on Aave’s V3 Ethereum deployment.
- Increase cbBTC’s supply and borrow cap on Aave’s V3 Base deployment.
Motivation
Given the recent demand shown for cbBTC, Chaos Labs recommends increasing caps.
cbBTC (Ethereum)
cbBTC has reached 100% supply cap utilization on Ethereum, and its borrow cap is at 41% capacity.
The previous cap increase was filled within one day as demands exceeded expectations.
Supply Distribution
Most of the top cbBTC suppliers use their holdings to borrow stablecoins like USDT, GHO, and USDC. The supply is highly concentrated in the largest supplier, which maintains a supply-only position. The remaining positions show mixed health scores, with the third-largest supplier currently at 1.05. The riskiest position uses cbBTC as collateral to borrow USDC, and due to its significant size, it presents a moderate liquidation risk.
Liquidity
The DEX liquidity of the asset recently dropped by roughly 25% but remains deep and sufficient to withstand the most likely liquidations. The current buy-side liquidity for cbBTC is $30M.
On-chain properties
cbBTC showed a quickly growing on-chain supply and cumulative transaction value. We expect these values to increase significantly in the coming weeks as more supply is onboarded to cbBTC.
While Aave successfully attracted over 30% of the on-chain supply, the restricting supply caps caused over 500 cbBTC to be deposited in competing lending markets.
Recommendation
Given user behavior and liquidity, we recommend increasing the supply and borrow caps.
cbBTC (Base)
cbBTC has reached 100% supply cap utilization on Base, and its borrow cap is at 17% capacity. The previous cap increase was filled within one day as demand was overwhelming.
Supply Distribution
While most of the top cbBTC suppliers borrow USDC, the largest wallet holds a supply-only position, accounting for over 70% of the total market supply. Although the remaining positions are small, they maintain very safe health scores, posing no significant risk of liquidation.
Liquidity
The Base DEX liquidity shows a similar situation to the Ethereum DEX liquidity, with a recent drop in liquidity following the asset price drop. The most recent value for the DEX liquidity of cbETH is $23M.
On-chain properties
The growth and utilization of cbBTC on Base is faster than on Ethereum.
While the on-chain distribution on the Base chain represents a notable improvement over Ethereum, and Aave has captured over 40% of the on-chain supply, the current caps have still led to 300 cbBTC being deposited into competing lending platforms.
Recommendation
Given user behavior and on-chain liquidity, we recommend increasing supply and borrow caps.
Specification
| Chain | Asset | Current Supply Cap | Recommended Supply Cap | Current Borrow Cap | Recommended Borrow Cap |
|---|---|---|---|---|---|
| Ethereum | cbBTC | 1,200 | 2,400 | 45 | 90 |
| Base | cbBTC | 800 | 1,600 | 20 | 40 |