# \[ARFC\] Chaos Labs Risk Stewards - Increase Supply and Borrow Cap on V3 Arbitrum, Polygon and Scroll - 04.26.2024 **URL:** \ **Category:** Governance\ **Created:** [April 26, 2024, 3:36pm UTC](https://governance.aave.com/t/arfc-chaos-labs-risk-stewards-increase-supply-and-borrow-cap-on-v3-arbitrum-polygon-and-scroll-04-26-2024/17483 "2024-04-26T15:36:38Z")\ **Posts on this page:** 4\ **Page:** 1
**Author:** ![ChaosLabs](https://dub1.discourse-cdn.com/flex013/user_avatar/governance.aave.com/chaoslabs/32/6850_2.png) [@ChaosLabs](https://governance.aave.com/u/ChaosLabs)\ **Post date:** [April 26, 2024, 3:36pm UTC](https://governance.aave.com/t/arfc-chaos-labs-risk-stewards-increase-supply-and-borrow-cap-on-v3-arbitrum-polygon-and-scroll-04-26-2024/17483/1 "2024-04-26T15:36:38Z")
# Summary A proposal to increase: **Arbitrum** - Increase the weETH supply and borrow caps **Polygon** - Increase the LINK supply cap - Increase the MaticX supply cap **Scroll** - Increase the USDC supply and borrow caps - Increase the wstETH supply cap # Motivation ## weETH (Arbitrum) weETH on Arbitrum has reached its supply cap with 44% borrow utilization. ![Untitled - 2024-04-26T104843.998](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/9/9f8b012371fa91677b72885827bf6bfd5503cca1.png) ### Supply Distribution The three largest suppliers are borrowing WETH against their collateral, putting these positions at little risk of liquidation, with WETH the only asset borrowed against weETH. ![Untitled - 2024-04-26T104845.520](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/e/e01eb2d2614020e768b34a63b769d16c038d5d13.png) ![Untitled - 2024-04-26T104848.119](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/a/afad7a4d9bb770d4c9bba25fd1c02e25cd8919f6.png) ### Borrow Distribution Borrows are limited, with the largest [user](https://community.chaoslabs.xyz/aave/risk/wallets/0x073be86d6cf0a64acf4a67e302d021a2dd4bba02) borrowing against WETH, again at little risk of liquidation. ![Untitled - 2024-04-26T104850.218](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/7/7060adf06dfd1b9dcc9e2ce6fbd780637b5ce1b5.png) ### Recommendation Based on on-chain liquidity and user distribution, we recommend doubling the supply and borrow caps. ## LINK (Polygon) ### Motivation LINK’s supply and borrow caps have utilization rates of 91% and 24%, respectively. ![Untitled - 2024-04-26T104917.023](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/6/620eb2936de538622a5f688ecd13c0cbbf2f0bba.png) ### Supply Distribution Supply is well distributed, with the top supplier responsible for just 3.3% of the total. ![Untitled - 2024-04-26T104919.413](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/d/dc9fcedb54dc59de080b06dd611a4259fc7348e9.png) USDT and USDC are the most popular assets borrowed against LINK collateral. ![Untitled - 2024-04-26T104921.685](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/e/ec771be4c5e6924215b76cd382b0c88b218f68a0.png) There is little collateral at risk until LINK’s price drops below $12.00 ![Untitled - 2024-04-26T104924.311](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/f/fe4683cf1863be667033b427afcdb82c9d931e65.png) ### Borrow Distribution There is limited borrowing of LINK, though WBTC is the most popular collateral asset. ![Untitled - 2024-04-26T104926.409](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/9/976557d9ac41286398afb37d7ee71dd2e61f0077.png) ### Recommendation Given on-chain liquidity and user distribution, we recommend increasing the supply cap to 800K and making no changes to the borrow cap. ## MaticX (Polygon) ### Motivation MaticX’s supply and borrow cap utilization has reached 93% and 4%, respectively. ![Untitled - 2024-04-26T105029.996](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/b/b80a59a6a393ade2b446861332ebaa8420fec3a6.png) ![Untitled - 2024-04-26T105031.430](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/a/ab24c2548fe1f58ee98a26844f74e87c5fe05a4b.png) ### Supply Distribution A single [wallet](https://community.chaoslabs.xyz/aave/risk/wallets/0x1e5b92c66e4cad7963e8dacf1e8d642304c172c8) is responsible for 35.5% of total supply; this user is also supplying WMATIC, STMATIC, and WETH while borrowing USDC.e, USDC, and USDT, maintaining a health score of 2.27. This position would be at risk of liquidation if MATIC’s price falls. ![Untitled - 2024-04-26T105033.008](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/9/98eb3cc3a20265db8f32428cbcd8927025ac4507.png) While the position is large, on-chain liquidity is sufficient to support liquidations. Overall, 70% of the value borrowed against MaticX is WMATIC, putting these positions at little risk of liquidation. ![Untitled - 2024-04-26T105038.508](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/a/a1587856cc87ccb24df3143102285d8ed36964a7.png) ### Borrow Distribution Borrow demand for MaticX is low; WETH and WBTC are the most popular collateral assets. ![Untitled - 2024-04-26T105040.768](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/3/3a58e8c17a3e96deac930cb465fa1ee2f9c23763.png) ### Recommendation As per community decision, the upper bound on LST supply caps is 75% of circulating supply on a given chain. This does limit us in this instance, and thus we recommend a cap that meets this criterion. ## wstETH (Scroll) wstETH has nearly reached its supply cap following new deposits. ![Untitled - 2024-04-26T105424.750](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/6/62f2ace5b3097ee9b56e108072863f559acfae9d.png) ![Untitled - 2024-04-26T105426.623](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/a/a99eb5c94e4a5f483ec7ef52d38e60df2f5ca014.png) ### Supply Distribution Most of the top suppliers in this market are borrowing USDC against wstETH collateral, not employing looping strategies as is common on other chains. The largest maintains a health score of 2.26. ![Untitled - 2024-04-26T105428.719](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/f/fbb35246a3df5033cfeeea402c038993e84b21f2.png) ![Untitled - 2024-04-26T105430.312](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/3/3606eb870e84d24ebd341610e17887b4d43a8f95.png) Collateral at risk does not breach $100k until wstETH’s price drops to $3,150. ![Untitled - 2024-04-26T105432.360](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/c/cd83cbfa7a7382767a219eca746042e6a2155cf1.png) ### Borrow Distribution The top borrowers of wstETH are borrowing against WETH collateral; a fairly unusual position for LSTs. However, they are at limited risk of liquidation. ![Untitled - 2024-04-26T105434.472](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/2/248a340b146813a9a340282bd372e62b6e9fec23.png) ### Recommendation Given that this market does not primarily facilitate looping, we rely on our stress-testing simulation methodology to provide a recommendation. Utilizing this, we recommend increasing the supply cap to 1000, with no impact on VAR. ## USDC (Scroll) USDC has nearly reached its supply cap following new deposits. ![Untitled - 2024-04-26T105708.909](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/4/4aeec95628fd9af15e773565e6c72e276df0e95b.png) ![Untitled - 2024-04-26T105710.432](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/5/5ec0bd9912ce00ac4c65372f1b9127c1d31f5076.png) ### Supply Distribution Nearly 75% of the market is supplied by a single [user](https://community.chaoslabs.xyz/aave/risk/wallets/0x7023d42703e1f9b6f1410df860d9b85f2a2eb0a6) who is borrowing WETH against their USDC collateral, with a health score of 1.18. This user has repaid $520K WETH since April 18 and is actively managing his position ![Untitled - 2024-04-26T105722.982](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/7/7a586cad815bde8389c4425346fd2c7d38f16031.png) This position represents 96% of the total value borrowed against USDC. ![Untitled - 2024-04-26T105724.905](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/7/743ef0b6e4af958f3d7e509b88c5e1b65ba036aa.png) ### Borrow Distribution The top borrowers of USDC are borrowing against WETH and wstETH collateral, putting them at risk of liquidation should ETH’s price fall. ![Untitled - 2024-04-26T105726.713](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/b/b794942eb2292af7ba8981bfaff0f3093d165c9e.png) ### Recommendation Given the on-chain liquidity and user distribution, we recommend increasing the supply and borrow caps. # Specification | Chain | Asset | Current Supply Cap | Recommended Supply Cap | Current Borrow Cap | Recommended Borrow Cap | | --- | --- | --- | --- | --- | --- | | Arbitrum | weETH | 2,000 | 4,000 | 200 | 400 | | Polygon | MaticX | 82,500,000 | 90,000,000 | 5,200,000 | No Change | | Polygon | LINK | 668,000 | 800,000 | 163,700 | No Change | | Scroll | wstETH | 700 | 1,000 | 45 | No Change | | Scroll | USDC | 5,000,000 | 7,500,000 | 3,600,000 | 6,500,000 | # 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](https://creativecommons.org/publicdomain) ---
**Author:** ![ChaosLabs](https://dub1.discourse-cdn.com/flex013/user_avatar/governance.aave.com/chaoslabs/32/6850_2.png) [@ChaosLabs](https://governance.aave.com/u/ChaosLabs)\ **Post date:** [April 26, 2024, 4:54pm UTC](https://governance.aave.com/t/arfc-chaos-labs-risk-stewards-increase-supply-and-borrow-cap-on-v3-arbitrum-polygon-and-scroll-04-26-2024/17483/2 "2024-04-26T16:54:54Z")
The transactions for Polygon and Scroll have now been executed. Given the 5 day timelock for weETH following the latest increase [here](https://governance.aave.com/t/arfc-chaos-labs-risk-stewards-increase-supply-and-borrow-caps-for-weeth-on-v3-arbitrum-04-21-2024/17433), the proposal has not yet been executed. ---
**Author:** ![ChaosLabs](https://dub1.discourse-cdn.com/flex013/user_avatar/governance.aave.com/chaoslabs/32/6850_2.png) [@ChaosLabs](https://governance.aave.com/u/ChaosLabs)\ **Post date:** [April 27, 2024, 4:48am UTC](https://governance.aave.com/t/arfc-chaos-labs-risk-stewards-increase-supply-and-borrow-cap-on-v3-arbitrum-polygon-and-scroll-04-26-2024/17483/3 "2024-04-27T04:48:54Z")
The transaction for Arbitrum has now been executed. ---
**Author:** ![system](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/e/e11637c36f45ffa158f2146f5c19438d46e0824d.svg) [@system](https://governance.aave.com/u/system)\ **Post date:** [May 27, 2024, 4:49am UTC](https://governance.aave.com/t/arfc-chaos-labs-risk-stewards-increase-supply-and-borrow-cap-on-v3-arbitrum-polygon-and-scroll-04-26-2024/17483/4 "2024-05-27T04:49:07Z")
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