[ARFC] Chaos Labs Risk Stewards - Increase Supply and Borrow Caps on Aave V3 - 08.13.2024

Summary

A proposal to:

  • Increase weETH’s supply and borrow caps on Aave’s V3 Scroll deployment.
  • Increase wstETH’s supply cap on Aave’s V3 Scroll deployment.

Motivation

weETH (Scroll)

weETH has reached 100% supply cap utilization on Scroll, and its borrow cap is at 100% capacity.

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Supply Distribution

All top weETH suppliers borrow either WETH or weETH against weETH collateral, putting their positions at little risk of liquidation.

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Overall, WETH represents 97.18% of the value borrowed against weETH; virtually all borrows against weETH are ETH-correlated assets.

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Borrow Distribution

The top weETH borrowers primarily use WETH as collateral, with some also using wstETH and weETH. The largest borrower represents a significant portion of the total market, indicating a concentration of borrowing activity. The largest open positions have low liquidation risk due to the close correlation between the borrowed weETH and the supplied WETH and wstETH assets.

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In aggregate, WETH represents 79.91% of the value backing weETH loans.

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Recommendation

Given on-chain liquidity and user behavior, we recommend doubling the supply and borrow caps.

wstETH (Scroll)

wstETH has reached 100% supply cap utilization on Scroll, and its borrow cap is at 59% capacity.

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Supply Distribution

Most of the top wstETH suppliers borrow WETH, with one maintaining a deposit-only position. The total supply is fairly distributed across wallets without a single supplier dominating the market. The largest open positions have low liquidation risk, as the supplied and borrowed assets (wstETH and WETH) are closely correlated ETH derivatives.

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Overall, WETH represents 98.5% of the value borrowed against wstETH.

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Recommendation

Given on-chain liquidity, we recommend increasing the supply cap, noting that we are limited by a community decision to set supply caps at a maximum of 75% of on-chain supply.

Specification

Chain Asset Current Supply Cap Rec. Supply Cap Current Borrow Cap Rec. Borrow Cap
Scroll weETH 4,000 8,000 400 800
Scroll wstETH 20,500 22,000 4,200 -

Next Steps

We will move forward and implement these updates via the Risk Steward process.
For transparency, we aim to execute the risk steward transaction on August 14th at 12:00 pm (Noon) GMT

Disclaimer

Chaos Labs has not been compensated by any third party for publishing this ARFC.

Copyright

Copyright and related rights waived via CC0

1 Like

Cap increase time was announced for 12:00 GMT, and the cap was increased at 11:45 GMT. It was INSTANTLY filled by… Bots? Insiders? It is unbelievable. Once again real users were left out. What is the point of publishing an exact time “for transparency” if the time is not respected??

1 Like

Do you have a transaction hash link? It would be helpful to take a look at the addresses that take advantage of these cap raises and dig a bit deeper on their patterns.

Here is the list of wallets that took advantage of these “early cap increase”. Aave Scroll weETH (aScrweETH) Token Tracker | Scrollscan

There are 23 wallets that supplied a total of 4000 weETH, the INSTANT the cap was increased by ChaosLabs, 15 minutes eariler than the time announced. Please check all the wallets that deposited 6 hours ago. I hope this gets investigated. It is not clear why ChaosLabs decided to raise the caps earlier even though there was an exact time scheduled. This is not decentralized nor transparent.

(My previous message was hidden for tagging ChaosLabs)

It’s not so hard to monitor caps increases and there’s obviously sophisticated users doing exactly that. As long as caps are immediately utilized there’s not much value in pre-communicating the hike imo - as history shows it will always be fully utilized within minutes anyways.

There’s currently two proposals, that might help to reduce the frustration a bit:

The question is why they first say that for “transparency” they will execute the transaction at an specific date and time, and then do whatever they want. “Sophisticated users” as you said are a minority. Current weETH cap on Scroll is 8000, and there are only 62 aweETH holders. It is HIGHLY concentrated. While on the other side, there are more than 16,000 weETH holders on Scroll. I assure you that there are THOUSANDS of users trying to deposit on Aave Scroll, but they can’t because it is being botted or they can’t respect the date and time they said they would raise the cap.

We apologize for any inconvenience this may have caused. Our goal is to ensure clear communication about transaction execution so that the community remains aligned. Unfortunately, a technical issue led to the transaction being executed earlier than the scheduled time.
Chaos Labs did not notify any party before the execution.

Here you can find the transaction hash

So when will be the next cap increase?

There must be at least a 5-day interval between cap increases.

Thank you. Is it possible for next time to announce and respect the schedule? Otherwise most of us won’t have a chance to deposit.

1 Like

The suggestion is to significantly increase the cap in the next update and limit the amount per wallet and per tx.

1 Like

Increasings are dependent on liquidity and many other parameter which is in great hands with @ChaosLabs and @LlamaRisk our both risk SP.

A limit per wallet only creates complication also it would be against the decentralized ethos. Anybody can use Aave and if there are user that use bots or anything else then they just use their edge. Caps will be increased step by step. You will be able to join the pool.

Let’s avoid using imprecise terms like “decentralization ethos”, especially when such concepts are open to various interpretations. The Aave community is vast and many people may or may not support such an “ethos”. What you’re describing is closer to “permissionlessness” and even this is clearly not something that is held in such high regard by the voting members of the Aave community as can be seen by how the protocol and governance has been designed.

I’d encourage @flaviopontes and @zackox to perhaps create a temp check to discuss this thoroughly and see what may come out of this.

1 Like

Hi, considering tomorrow it will be 5 days since last weETH cap raise on Scroll, will we get another increase? I don’t see any new proposal to increase it, neither time or date.

Chaos can we have an update on when Scroll weETH caps will be increased? Today is the fifth day since the last increase. It would be great knowing the exact time when this will happen so we can finally deposit.

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