[ARFC] Chaos Labs Risk Stewards - Increase Supply and Borrow Cap for weETH on V3 Ethereum and Base - 07.02.2024

Summary

A proposal to:

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

Motivation

weETH (Ethereum)

weETH has reached 100% utilization of its supply cap on Ethereum, and its borrow cap is at 75% capacity.

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Supply Distribution

Most of the top weETH suppliers borrow WETH against it, with some borrowing weETH itself. The total supply is fairly distributed across wallets, with the largest supplier representing 21% of the total. The largest open positions have low liquidation risk, as weETH and WETH are closely correlated.

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Overall, WETH represents 76.27% of the value borrowed against weETH.

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Borrow Distribution

The top weETH borrowers primarily use weETH itself as collateral, with some also using WETH and wstETH, putting these positions at low risk of liquidation.

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Recommendation

Given on-chain liquidity, as well as user distribution and behavior, we recommend increasing weETH’s supply and borrow caps on Ethereum.

weETH (Base)

Motivation

weETH has reached 100% utilization of its supply cap on Base; its borrow cap is at 57% capacity.

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Supply Distribution

Most of the top weETH suppliers borrow WETH. The total supply is fairly distributed across wallets, with no single supplier dominating the market. The largest open positions have low liquidation risk, as weETH and WETH are tightly correlated.

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Overall, WETH represents 85.95% of the value borrowed against weETH.

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Borrow Distribution

Large weETH borrowers are almost universally borrowing against their own weETH, presenting little to no liquidation risk.

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Recommendation

Given on-chain liquidity, as well as user distribution and behavior, we recommend increasing weETH’s supply cap — noting that we are limited by on-chain supply — and increasing its borrow cap by 50%.

Specification

Chain Asset Current Supply Cap Recommended Supply Cap Current Borrow Cap Recommended Borrow Cap
Ethereum weETH 550,000 600,000 150,000 200,000
Base weETH 1,200 2,000 240 360

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 on July 3rd at 11 am GMT

Disclaimer

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

Copyright

Copyright and related rights waived via CC0.

We have updated the proposal and reduced the increase of weETH supply cap on Ethereum from 650k to 600k given the current utilization for WETH on V3 Ethereum

The transaction for the proposal on Base has been executed.

The transaction for the proposal on Ethereum has been executed.

Where can I find proposal(vote) or payload?
I cannot find about it on snapshot (Snapshot) and governance (Aave - Open Source Liquidity Protocol)