Summary
A proposal to:
- Increase LBTC’s supply cap on the Ethereum Core instance.
- Increase WETH’s supply and borrow caps on the Ethereum Core instance.
- Increase wstETH’s supply cap on the ZkSync instance.
All increases are backed by Chaos Labs’ risk simulations, which consider user behavior, on-chain liquidity, and price impact, ensuring that higher caps do not introduce additional risk to the platform.
LBTC (Ethereum Core)
LBTC’s supply cap has reached 100% utilization following consistent new deposits.
Supply Distribution
Supply is not heavily concentrated, with no user supplying more than 400 LBTC. The top three users are all borrowing WBTC, while the fourth largest is borrowing cbBTC. The correlation present in all but one of the top supplying positions limits the risk in this market.
USDC is the most popular uncorrelated asset borrowed against LBTC, at just $2.8M borrowed.
Liquidity
LBTC’s liquidity has remained strong relative to its market size on Aave.
Recommendation
Given user behavior and on-chain liquidity, we recommend doubling LBTC’s supply cap.
WETH (Ethereum Core)
WETH’s supply and borrow cap utilization has continued to climb following new activity in the market.
Supply Distribution
WETH’s supply is not heavily concentrated, with the largest user depositing 265K WETH relative to a total supply of 1.91M. This wallet — linked to the exchange HTX — is not borrowing against their position, most recently repaying 80M USDT and 3M USDC on February 2.
Most of the other top suppliers are not borrowing or maintain relatively high health scores. USDT and USDC, two highly liquid stablecoins, are the most popular assets borrowed against WETH.
Borrow Distribution
Top borrowers are also not highly concentrated, and all top borrowing positions are using correlated collateral, reducing the liquidation risk.
weETH and wstETH represent the majority of collateral against WETH.
Liquidity
WETH’s liquidity has remained strong even following the sharp sell-off last week.
Recommendation
Given user behavior and strong on-chain liquidity, we recommend increasing the asset’s supply and borrow caps.
wstETH (ZkSync)
wstETH’s supply cap utilization is approaching 100% while its borrow cap is 50% utilized.
Supply Distribution
wstETH’s supply is well distributed, and the majority of top suppliers are leveraging the asset against WETH.
There are just over $600K worth of uncorrelated borrows in this market.
Liquidity
wstETH’s liquidity on ZkSync has improved substantially in recent weeks and is sufficient to support an increase in the asset’s supply cap.
Recommendation
Given the high degree of correlated borrowing and on-chain liquidity, we recommend increasing the asset’s supply cap.
Specification
| Instance | Asset | Current Supply Cap | Recommended Supply Cap | Current Borrow Cap | Recommended Borrow Cap |
|---|---|---|---|---|---|
| Ethereum Core | LBTC | 1,600 | 3,200 | 1 | - |
| Ethereum Core | WETH | 2,200,000 | 2,420,000 | 1,980,000 | 2,200,000 |
| ZkSync | wstETH | 2,300 | 3,200 | 240 | - |
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