Summary
A proposal to increase the supply and borrow caps on USDC and USDT on V3 Arbitrum
Motivation
USDT (Arbitrum)
USDT is approaching its 75% of its supply cap and 89% of its borrow cap following sustained growth in the market in recent weeks.
Supply Distribution
9 of the 10 top suppliers are not borrowing against their positions, putting this market at lower risk of a large liquidation cascade.
Borrows against USDT are limited, at just $4.42M, $2.63M of which is WETH; these positions are at risk of liquidation should WETH’s price rise.
Borrow Distribution
Borrowers are well distributed, with the top borrower borrowing $3.03M USDT, accounting for less than 5% of the total borrows.
Overall, WETH and WBTC are the most popular collateral assets against USDT, followed by wstETH.
Recommendation
Given on-chain liquidity and user distribution, we recommend increasing the supply cap to 130M and the borrow cap to 120M
USDC (Arbitrum)
USDC is approaching its nearly 88% utilization of its supply and borrow cap following sustained growth in the market in recent weeks.
Supply Distribution
7of the 10 top suppliers are not borrowing against their positions, putting this market at lower risk of a large liquidation cascade.
Borrows against USDT are limited, at just $25.72M, $17.44M of which is WETH and WBTC
Borrow Distribution
The largest borrower is the dHedge 3x ETH strategy, with $90.3M WETH deposited and $61.8M USDC borrowed against their collateral.
The second largest borrower is the dHedge 3x BTC strategy, with $77.06M WBTC deposited and $51.08M USDC borrowed.
Recommendation
Given on-chain liquidity and user distribution, we recommend increasing the supply and borrow cap to 350M and 320M, respectively,
Specification
| Chain | Asset | Current Supply Cap | Recommended Supply Cap | Current Borrow Cap | Recommended Borrow Cap |
|---|---|---|---|---|---|
| Arbitrum | USDT | 100,000,000 | 130,000,000 | 70,000,000 | 120,000,000 |
| Arbitrum | USDC | 300,000,000 | 350,000,000 | 270,000,000 | 320,000,000 |
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