Summary
A proposal to:
- Increase ZK’s supply and borrow caps on the ZkSync Main instance.
- Increase USDC’s supply and borrow caps on the ZkSync Main instance.
- Increase WETH’s supply and borrow caps on the ZkSync Main instance.
All increases are backed by Chaos Labs’ risk simulations, which consider user behavior, on-chain liquidity, and price impact, ensuring that the higher cap does not introduce additional risk to the platform.
ZK (ZkSync-Main)
ZK has reached 100% of its supply cap, while its borrow cap is 40% utilized.
Supply Distribution
The supply distribution of ZK is not concentrated, with the largest supplier accounting for just over 10% of the total supply.
All but two of the top positions have no borrowing activity, presenting limited liquidation risk at this time. The asset is also in Isolation Mode, further reducing risk associated with increasing supply caps. We will separately propose an adjustment to the asset’s debt ceiling.
Borrow Distribution
ZK is borrowed against a variety of liquid collateral assets. None of these positions pose a risk to the protocol at this time.
Liquidity
ZK-USDC’s DEX liquidity has improved significantly since the beginning of ZK Ignite and is sufficient to support cap increases.
Recommendation
Given user behavior and improving DEX liquidity, we recommend doubling the supply and borrow caps.
USDC (ZkSync-Main)
USDC’s supply cap is fully utilized at 100%, with its borrow cap utilization reaching 94%.
Supply Distribution
The supply distribution of USDC presents limited risks. The top supplier accounts for 30% of the total distribution, indicating some concentration risk. However, as this user is borrowing USDC against USDT and USDC, the liquidation risk remains minimal at this time.
The remaining top suppliers are either borrowing correlated assets or have no borrowing activities, significantly reducing the risk of liquidation.
The largest borrowed asset against USDC is USDC itself, accounting for approximately 90% of the total borrowed asset distribution, which reduces the likelihood of large liquidation events.
Borrow Distribution
The borrow distribution of USDC presents limited liquidation risk. The top borrower accounts for around 32% of the total distribution, indicating some concentration risk. However, since this user is borrowing USDC against USDC and USDT, the liquidation risk is largely reduced.
The remaining top borrowers are either borrowing USDC against USDC itself or maintaining a high health score, further reducing the liquidation risk.
Liquidity
As shown below, USDC’s liquidity paired with USDT has experienced fluctuations recently, but there is no indication of a consistent decline.
Although the liquidity is relatively small compared to the total supply, our analysis of top supplier behavior indicates that this does not present any significant concerns.
Recommendation
Given user distribution and on-chain liquidity, we recommend doubling the supply cap and borrow caps.
WETH(ZkSync)
WETH’s supply cap on ZkSync has reached 99% utilization, and its borrow cap is fully utilized as well.
Supply Distribution
The top supplier accounts for around 28% of the total supply, which presents a certain level of concentration risk. However, since this user is borrowing WETH against WETH and wstETH, it does not pose a significant liquidation risk.
The other top suppliers are either looping WETH or maintaining a high health score, which mitigates the liquidation risk.
WETH is the largest borrowed asset against itself, comprising 66% of the total borrowed asset distribution.
Borrow Distribution
The top borrowers of WETH are all borrowing against WETH or wstETH, presenting a low risk of liquidation.
The top borrower accounts for approximately 56% of the total borrow volume, which presents a concentration risk. However, since this user is borrowing WETH against WETH and wstETH, the liquidation risk is significantly reduced.
Liquidity
WETH liquidity has improved, enabling a 200 WETH sell with less than 3% slippage. Although this liquidity is limited relative to the total supply, the low liquidation risk observed due to user behavior mitigates any major concerns.
Recommendation
Given user behavior and anticipated supply and borrow demand, we recommend doubling both caps.
Specification
| Chain | Instance | Asset | Current Supply Cap | Recommended Supply Cap | Current Borrow Cap | Recommended Borrow Cap |
|---|---|---|---|---|---|---|
| ZkSync | Main | ZK | 144,000,000 | 288,000,000 | 10,000,000 | 20,000,000 |
| ZkSync | Main | WETH | 3,400 | 6,800 | 1,800 | 3,600 |
| ZkSync | Main | USDC | 4,000,000 | 8,000,000 | 3,600,000 | 7,200,000 |
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