Increase the weETH supply and borrow cap on Aave V3’s Ethereum deployment.
weETH
Motivation
weETH has reached its supply and borrow caps on Ethereum.
Supply Distribution
Most of the top suppliers are borrowing WETH against weETH collateral, putting these positions at limited risk of liquidations, given the calculated oracle for weETH.
There is, however, a user supplying 2.05K weETH along with 309 WBTC, for an overall position of $26.15M supplied and $15.6M borrowed, giving a health score of 1.31. This position is at risk of liquidation should WBTC and/or weETH’s price decline, though on-chain liquidity would support efficient liquidations.
Overall, WETH represents 87% of the value borrowed against weETH.
Borrow Distribution
weETH is only being borrowed by two users, who are borrowing against weETH collateral.
Recommendation
As per the community decision, the upper bound on LST supply caps is 75% of the circulating supply on a given chain. This does not limit us in this instance, and thus, we recommend increasing the supply and borrow caps.
Specification
Chain
Asset
Current Supply Cap
Recommended Supply Cap
Current Borrow Cap
Recommended Borrow Cap
Ethereum
weETH
16,000
32,000
800
1,600
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.
You must be kidding me. I am monitoring the entire day just to grab a few weETH and this was already filled after 2 seconds. Why don’t you cap per account or at least let us know in advance when it will be lifted so we have a fair chance??
As already said to you a few times there is a 5 day time lock. And no transaction will be told upfront. This is to ensure nobody can time it to get in. In the end it’s random and everybody has the same chance. If risk approves it, in 5 days the cap will be higher again.
I think @ChaosLabs is monitoring the situation and taking care of this via Risk steward process, that means they can execute the transaction within days without DAO approval. I would need to go through governance.
Maybe have one more day patience, but we will ensure everybody gets the chance to depost or borrow weETH
Before further raising the weETH supply cap through the Risk Steward process, we aim to gauge the community’s willingness to adopt more aggressive risk parameters for weETH, as outlined in this proposal. We will soon provide our analysis, which will be followed up by community Snapshot vote. If the Snapshot vote is positive, we will proceed to facilitate cap increases via Risk Steward.
Wouldn’t it make sense to conservatively increase caps u til the linked proposal reaches a result? Given there’s not even a snapshot yet it seems unlikely it will yield any result in next 5 days.
Does a 32k weETH supply cap for a 1.21 Million ETH TVL project with withdrawals enabled and a big withdrawal liquidity buffer + very good Dex liquidity really warrant a special “aggressive risk parameters” vote already? The 8k starting cap was insanely tiny to begin with for a project of this magnitude. The 32k weETH is only around 2.5% of the current Etherfi total staked ETH.
And almost all the suppliers are exclusively borrowing ETH against their weETH, with ~35% of the entire supply cap having been taken by the official Etherfi Liquid vault address alone so far. So the liquidation/liquidity risk should be absolutely minimal, no?
Would have made way more sense to make a Snapshot vote 6 days ago, right after the last 32k cap was filled, instead of waiting all this time now and then only starting a vote now. In those 6 days neither the supplying/borrowing constellation changed, nor did the underlying market liquidity. And until this vote starts, plus the voting duration, a lot of time will pass again. Which is kinda defeating the purpose of having this Risk Steward method as it would probably be even slower than just having voted on the other proposal in the first place (which nobody cared about as people thought the Risk Steward process is the method chosen going forward, I guess).
The current caps relative to the total supply of weETH are indeed low, and given the oracle implementation and existing DEX liquidity, the risk of liquidation is minimal. The upcoming community vote will primarily act as a signal for willingness to assume counterpart and smart contract risks not covered by Chaos in the scope of this engagement. This will enable us to confidently increase caps through the Risk Steward without needing further community input.
However, after discussions with several community members, we agree that it is prudent to proceed with a modest increase via the Risk Steward before this snapshot period concludes. We will share this separately shortly.
