Summary
A proposal to:
- Increase MaticX’s supply cap on Aave’s Polygon deployment.
- Increase weETH’s supply cap on Aave’s Ethereum deployment.
Motivation
weETH (Ethereum)
weETH has reached 100% supply cap utilization on Ethereum, and its borrow cap is at 26% capacity.
Supply Distribution
Most of the top weETH suppliers engage in a combination of supplying weETH and borrowing WETH. The largest weETH supplier represents a significant portion of the total market, with supply fairly distributed among the remaining top wallets. The largest open positions have low liquidation risk, as the supplied and borrowed assets are closely correlated ETH derivatives.
Overall, WETH represents 90.75% of the value borrowed against weETH.
WETH Borrow
From the current weETH borrow distribution, we can deduce that the majority of weETH supply is used to borrow WETH. The current availability of the WETH market is then a major consideration for increasing the weETH caps.
With the current utilization of the WETH market at 81.57%, we have ~80,000 WETH of buffer to reach our 90% utilization target.
Recommendation
After taking into consideration the current utilization in the WETH market, user behavior, and on-chain liquidity, we recommend increasing the weETH supply cap to 790,000 weETH.
MaticX (Polygon)
MaticX has reached 96% supply cap utilization on Polygon, and its borrow cap is at 9% capacity.
Supply Distribution
Most of the top MaticX suppliers maintain deposit-only positions, with a few borrowing USDC.e or WMATIC. The largest MaticX supplier represents an outsized proportion of the total market, significantly larger than the other top suppliers. The largest open positions have limited liquidation risk as they have very high health scores. The borrowing positions involve stablecoins or closely related assets like WMATIC.
Overall, WMATIC represents 62.77% of the value borrowed against MaticX.
WMATIC Borrow
From the current MaticX borrow distribution, we can deduce that most of the MaticX supply is used to borrow WMATIC. The current availability of the WMATIC market is then a major consideration for increasing the MaticX caps.
With the current utilization of the WMATIC market at 43%, there is a buffer of 28,000,000 WMATIC to reach our 90% utilization target.
Recommendation
After taking into consideration the current utilization in the WMATIC market, user behavior and on-chain liquidity, we recommend increasing the MaticX supply cap to 120,000,000 MaticX.
Specification
| Chain | Asset | Current Supply Cap | Recommended Supply Cap | Current Borrow Cap | Recommended Borrow Cap |
|---|---|---|---|---|---|
| Ethereum | weETH | 720,000 | 790,000 | 200,000 | 200,000 |
| Polygon | MaticX | 97,000,000 | 120,000,000 | 5,200,000 | 5,200,000 |
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 24th at 11:00 pm GMT
Disclaimer
Chaos Labs has not been compensated by any third party for publishing this ARFC.
Copyright
Copyright and related rights waived via CC0