[ARFC] Chaos Labs Risk Stewards - Increase Supply and Borrow Cap for weETH on V3 Ethereum - 06.03.2024

Summary

A proposal to:

  • Increase weETH’s supply and borrow caps on Aave V3’s Ethereum deployment.

Motivation

weETH (Ethereum)

Following the community decision signaling a positive sentiment towards more aggressive exposure to weETH, we are prepared to facilitate additional cap increases via the caps steward.

weETH has reached its supply cap on Ethereum, while its borrow cap stands at 75% utilization.

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Supply Distribution

Each of the top 10 suppliers is looping weETH, either with WETH or with itself. These positions are at limited risk of liquidation given the calculated oracle for weETH.

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Following the last cap increase, there were 40 deposits of 100 weETH or more, with the 17 largest deposits associated with a single wallet that has been active for 9 days and is now borrowing $64.2M WETH against $66.2M weETH.

Overall, WETH and weETH represent 99.72% of the value borrowed against weETH, up from 98.52% at the time of our last recommendation.

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Borrow Distribution

The largest borrower is borrowing weETH and WETH against WETH; the rest of the top ten exhibits similar behaviors. This borrowing profile presents limited risk to the market, given the correlation between weETH and WETH.

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Recommendation

Given on-chain liquidity, as well as user distribution and behavior, we recommend increasing the supply and borrow caps by 25%.

Specification

Chain Asset Current Supply Cap Recommended Supply Cap Current Borrow Cap Recommended Borrow Cap
Ethereum weETH 300,000 375,000 80,000 100,000

Next Steps

We will move forward and implement these updates via the Risk Steward process.
For transparency, we aim to execute the risk steward transaction at 5pm GMT

Disclaimer

Chaos Labs has not been compensated by any third party for publishing this ARFC.

Copyright

Copyright and related rights waived via CC0

1 Like

Does it mean 5pm GMT on the 4th June? cause the title says 6.3.204, which in that case 5pm GMT already elapsed.

Thank you for being transparent with the time. This will benefit those not using contracts to automate their entry / looping.

This should reduce the % going to large whale wallets / protocols. A broader supply / borrow base should make for more efficient markets and less centralisation.

The transaction for this proposal has now been executed.