Summary
A proposal to:
- Increase WETH’s borrow cap on Aave V3 Scroll deployment.
- Increase wstETH’s borrow cap on Aave V3 Scroll deployment.
- Increase weETH’s supply cap on Aave V3 Scroll deployment.
- Increase WETH’s borrow cap on Aave V3 Arbitrum deployment.
- Increase weETH’s supply cap on Aave V3 Arbitrum deployment.
- Increase weETH’s supply cap on Aave V3 Base deployment.
Motivation
WETH (Scroll)
WETH on Scroll has reached 84% supply cap and 92% borrow cap. The utilization rate has risen to 77.39%.
Borrow Distribution
The biggest WETH borrowers are using wstETH or weETH as collateral. Only one of the top WETH borrowers is using USDC as collateral. Given the high correlation between the collateral and the asset borrowed, these positions do not pose any significant liquidation risk.
Overall, WETH-correlated assets represent 94.48% of the value borrowed against WETH.
Recommendation
Given the on-chain liquidity and users’ behavior, we recommend increasing the borrow cap to 63,000 WETH.
wstETH (Scroll)
wstETH on Scroll has reached 100% supply cap and 98% borrow cap.
Borrow Distribution
The biggest wstETH borrowers provide WETH as collateral, which is highly correlated to wstETH and provides a low liquidation risk.
Overall, WETH represents 97.85% of the collateral used to borrow wstETH.
Recommendation
Given the users’ behavior, the correlation of the collateral used, and the limited on-chain supply, we recommend increasing only the borrow cap to 12,000 wstETH.
weETH (Scroll)
weETH on Scroll has reached 100% supply cap and 98% borrow cap.
Supply Distribution
The biggest weETH suppliers are borrowing WETH. The three biggest borrowers represent a significant portion of the market. Given the high correlation between weETH and WETH, these positions have a low risk of liquidation.
Overall, WETH represents 93.22% of the assets borrowed against weETH.
Borrow Distribution
The biggest weETH borrowers are using WETH and weETH as collateral. The biggest weETH borrower represents a disproportionate part of the market. Given the high correlation between the asset borrowed and the collateral, the position has a low liquidation risk.
Overall, weETH represents 43.66% of the collateral used to borrow weETH.
Recommendation
Given on-chain liquidity, users’ behavior, and the tendency to abuse the borrow cap for looping, we recommend increasing only the supply cap to 30,000 weETH.
WETH (Arbitrum)
WETH on Arbitrum has reached 72% of its supply cap and 88% of its borrow cap.
Borrow Distribution
The biggest WETH borrowers use either weETH or wstETH as collateral. The distribution of borrowers is well-balanced, with no single entity representing a disproportionate part of the market. Given the high correlation between the asset borrowed and its collaterals, the positions have a low liquidation risk.
Overall weETH represents 68.97% of the collateral value used to borrow WETH.
Recommendation
Given on-chain liquidity and users’ behavior, we recommend increasing only the borrow cap to 120,000 WETH.
weETH (Arbitrum)
weETH on Arbitrum has reached 100% of its supply cap while maintaining only 37% of its borrow cap filled.
Supply Distribution
The top weETH suppliers use it as collateral to borrow WETH. The distribution of suppliers is well-balanced, with no single entity representing a disproportionate part of the market. Given the high correlation between the asset borrowed and its collaterals, the positions have a low liquidation risk.
Overall, WETH represents 86.64% of the value borrowed against weETH collateral.
Recommendation
Given on-chain liquidity and users’ behavior, we recommend increasing the supply cap to 77,000 weETH.
weETH (Base)
weETH on Base has reached 96% of its supply cap while maintaining only 13% of its borrow cap filled.
Supply Distribution
The major weETH suppliers use it to borrow WETH. The biggest weETH supplier represents a disproportionate part of the market. However, given the high correlation between the asset borrowed and the collateral, its position has a low liquidation risk.
Overall, WETH represents 95% of the value borrowed against weETH collateral.
Recommendation
Given on-chain liquidity, users’ behavior, and the limited on-chain supply, we recommend increasing the supply cap to 22,500 weETH.
Specification
| Chain | Asset | Current Supply Cap | Recommended Supply Cap | Current Borrow Cap | Recommended Borrow Cap |
|---|---|---|---|---|---|
| Scroll | WETH | 70,000 | - | 50,000 | 63,000 |
| Scroll | wstETH | 22,000 | - | 8,400 | 12,000 |
| Scroll | weETH | 24,000 | 30,000 | 3,200 | - |
| Arbitrum | WETH | 140,000 | - | 100,000 | 120,000 |
| Arbitrum | weETH | 75,000 | 77,000 | 25,000 | - |
| Base | weETH | 21,000 | 22,500 | 9,000 | - |
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.
For transparency,
Copyright
Copyright and related rights waived via CC0