Summary
A proposal to increase:
- USDC — Supply and Borrow Cap
- WETH — Supply and Borrow Cap
Motivation
The recommendations below were made utilizing Chaos’ supply and borrow cap methodologies after analyzing user positions for each asset.
USDC
The supply cap for USDC on Base V3 is currently at 91% utilization, while the borrow cap utilization stands at 89%.
Total supplied and borrowed has continued to climb since last week’s cap increase.
This is tied to a broader increase in TVL and volume on Base.
Supply Distribution
The top supplier of USDC has borrowed $2.7M of WETH against $4.3M USDC. The second largest supplier has borrowed $2.5M WETH against $4M USDC. They represent about 95% of all borrows against USDC collateral.
Both users have a health of 1.28, which has declined as WETH’s price has increased. Together, they represent about 60% of all USDC supplied in this market; that figure has declined since the recent cap raises, as other users have deposited USDC. The current on-chain liquidity distribution is adequate to execute liquidations in the event of continuous price appreciation of the underlying debt asset without corresponding debt repayments.
Borrow Distribution
USDC borrows are significantly more distributed, with differing health across the top wallets.
$8.7mn WETH, $2.19M wstETH, and $1M cbETH and is being used as collateral to borrow USDC.
Considering the liquidity on Base and the composition of supply and borrows, we recommend increasing the supply and borrow caps to 30M and 27M, respectively.
WETH
The supply and borrow cap utilization of WETH stand at 84% and 57%, respectively.
Both have grown in the past 90 days as Base activity has surged.
Supply Distribution
The top suppliers are distributed and exclusively borrow USDC and USDCbC
USDC represents 88% of the value of assets borrowed against WETH.
Borrow Distribution
The borrowing is well distributed, with the exception of the top borrowers, who are the same USDC suppliers mentioned above.
Besides these users, the most common collateral asset to borrow WETH is cbETH and wstETH, both of which are correlated with WETH.
Considering the liquidity on Base and the composition of supply and borrows, we recommend increasing the supply and borrow caps to 12K and 6K, respectively.
Specification
| Chain | Asset | Current Supply Cap | Recommended Supply Cap | Current Borrow Cap | Recommended Borrow Cap |
|---|---|---|---|---|---|
| Base | USDC | 15,000,000 | 30,000,000 | 13,500,000 | 27,000,000 |
| Base | WETH | 8,000 | 12,000 | 4,000 | 6,000 |
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