Summary
A proposal to:
- Increase wstETH’s supply cap on the ZkSync instance.
- Increase WETH’s borrow cap on the ZkSync instance.
- Increase USDt’s supply cap on the Avalanche instance.
- Increase WETH’s supply and borrow caps on the Base instance.
wstETH (ZkSync)
The supply cap for wstETH has reached 96% utilization, while its borrow cap utilization stands at 41%.
Supply Distribution
The supply of wstETH is well-distributed, with the largest supplier holding less than 10% of the total supply. Among the top ten suppliers, all except one are either borrowing correlated assets or no assets at all, significantly mitigating liquidation risk. The remaining supplier is borrowing USDC but maintains a health score of 1.72, which does not pose a significant concern at this time.
The largest borrowed asset against wstETH is WETH, accounting for approximately 88.85% of the borrowed asset distribution, significantly reducing the likelihood of large-scale liquidations.
Liquidity
wstETH’s liquidity has experienced fluctuations and remains relatively limited compared to its total supply. While this does not present significant concerns based on our analysis of top supplier behavior, we will factor in this liquidity constraint when considering the cap increase.
Recommendation
Given user behavior and on-chain liquidity, we recommend increasing the supply cap to 2.2K wstETH.
WETH (ZkSync)
WETH’s borrow cap utilization has reached 100%, while its supply cap utilization stands at 79%.
Borrow Distribution
The borrow distribution of WETH presents limited liquidation risk. All top borrowers are borrowing WETH by collateralizing WETH or wstETH, significantly reducing the risk of liquidation.
The distribution of collateral assets against WETH aligns with our analysis of top borrower behavior, with WETH and wstETH being the two largest collateral assets, collectively accounting for 98% of the total distribution.
Liquidity
WETH’s liquidity has been increasing over the past month, with a 300 WETH sell to USDC currently incurring less than 5% price slippage.
Recommendation
Given user behavior and on-chain liquidity, we recommend increasing the borrow cap to 11K WETH.
USDt (Avalanche)
USDt’s supply cap utilization has reached 97%, while its borrow cap utilization stands at 53%.
Supply Distribution
The top supplier of USDt holds 84% of the total supply, indicating a concentration risk. However, since this user has no borrowing activity, it does not pose any liquidation risk at this time.
Among the remaining top suppliers, all except two have no borrowing activity, presenting no liquidation risk at this time. Of the two suppliers with active borrowing, one maintains a high health score (1.83), while the other is borrowing USDC, significantly reducing liquidation risk.
Currently, the top borrowed asset against USDt is USDC, accounting for 37.2% of the total distribution. Additionally, the total borrowed amount stands at only $2.99 million, which is minimal compared to the total supply.
Liquidity
The liquidity of USDt has been decreasing over the past two months but remains sufficient for a supply cap increase. Currently, a 5M USDt sell incurs less than 3% price slippage.
Recommendation
Given user behavior and on-chain liquidity, we recommend increasing the supply cap to 130M USDt.
WETH (Base)
The supply and borrow caps for WETH have both reached 83% utilization.
Supply Distribution
Supply of WETH is not heavily concentrated, with the top user representing 14% of total supply. This user is borrowing cbBTC against their collateral; the position is highly active and the user is utilizing borrowed cbBTC to LP on Aerodrome.
Other top users are borrowing USDC, though they maintain relatively strong health scores, reducing liquidation risk.
The majority of value borrowed against WETH is USDC.
Borrow Distribution
All top borrowers are leveraging weETH, making the risk of liquidation low.
97% of collateral is ETH-correlated, again reducing the risk of liquidation.
Liquidity
WETH’s liquidity has remained stable, supporting an increase in supply and borrow caps.
Recommendation
Given user behavior and on-chain liquidity, we recommend increasing the supply and borrow caps.
Specification
| Instance | Asset | Current Supply Cap | Recommended Supply Cap | Current Borrow Cap | Recommended Borrow Cap |
|---|---|---|---|---|---|
| ZkSync | wstETH | 2,100 | 2,300 | 240 | - |
| ZkSync | WETH | 13,000 | 15,000 | 7,200 | 11,000 |
| Avalanche | USDt | 100,000,000 | 130,000,000 | 80,000,000 | - |
| Base | WETH | 90,000 | 130,000 | 72,000 | 110,000 |
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