Summary
A proposal to:
- Increase stMATIC’s supply cap on Aave’s V3 Polygon deployment.
- Increase CRV’s supply and borrow caps on Aave’s V3 Ethereum deployment.
Motivation
stMATIC (Polygon)
stMATIC has reached 100% supply cap utilization on Polygon. This surge in utilization was caused by one user depositing 25M of stMATIC.
Supply Distribution
The biggest stMATIC supplier is borrowing USDC. Given the safe health score, this position provides a low risk of liquidation. Most of the top suppliers instead borrow WMATIC, which is highly correlated to stMATIC and provides low liquidation risk.
Overall, WMATIC represents 52.82% of the value borrowed against stMATIC.
Recommendation
Given the high correlation with the main asset borrowed, the on-chain liquidity, and the users’ behavior, we recommend increasing the supply cap to 61,000,000 stMATIC.
CRV (Ethereum)
CRV has reached 89% supply cap utilization on Ethereum, and its borrow cap is at 76% capacity.
Supply Distribution
Most of the top CRV suppliers maintain deposit-only positions, with a few borrowing small amounts of USDT or USDC. The majority of the large open positions have no liquidation risk due to being supply-only, while the few positions with borrows have low liquidation risk as they have a high health score.
Overall, USDT represents 53.91% of the value borrowed against CRV.
The usage of the Isolated Debt Ceiling is very limited and shows low demand to borrow against CRV.
Borrow Distribution
The top CRV borrowers primarily use WBTC as collateral, while some also use ETH-correlated assets. The largest borrower represents a significant portion of the total market, suggesting a concentration of risk. CRV is a volatile asset and is not closely correlated with the primary collateral assets (WBTC and ETH), so these positions carry a sustained liquidation risk.
In aggregate, WBTC represents 34.76% of the value backing CRV loans.
Recommendation
Given the limit of isolation mode and the remaining space before reaching the Isolated Debt Ceiling, we recommend increasing the supply cap to 11,500,000 CRV and the borrow cap to 3,500,000 CRV.
Specification
| Chain | Asset | Current Supply Cap | Recommended Supply Cap | Current Borrow Cap | Recommended Borrow Cap |
|---|---|---|---|---|---|
| Polygon | stMATIC | 57,000,000 | 61,000,000 | - | - |
| Ethereum | CRV | 10,000,000 | 11,500,000 | 2,750,000 | 3,500,000 |
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