Summary
A proposal to:
- Increase weETH’s supply cap on Aave’s V3 Ethereum deployment.
- Increase weETH’s supply cap on Aave’s V3 Arbitrum deployment.
- Increase wstETH’s supply cap on Aave’s V3 Polygon deployment.
- Increase USDC’s supply and borrow cap on Aave’s V3 Avalanche deployment.
Motivation
weETH (Ethereum)
weETH has reached 100% supply cap utilization on Ethereum, and its borrow cap is at 36% capacity.
Supply Distribution
Most of the top weETH suppliers borrow WETH or weETH. The supply distribution is even among the largest wallets, indicating no concentration of the supply. The largest open positions have low liquidation risk, as the supplied and borrowed assets are either identical or closely correlated ETH derivatives.
Overall, WETH represents 88.1% of the value borrowed against weETH.
Recommendation
Given the users’ behavior and available liquidity, we recommend increasing the supply cap to 935,000 weETH.
weETH (Arbitrum)
weETH has reached 96% supply cap utilization on Arbitrum, and its borrow cap is at 12% capacity.
Supply Distribution
Most top weETH suppliers borrow WETH, with a few also borrowing small amounts of weETH or wstETH. The supply distribution is even among the largest wallets, indicating no concentration of the supply. The largest open positions have little liquidation risk, involving borrowing assets correlated to the ones supplied.
Overall, WETH represents 96.14% of the value borrowed against weETH.
Recommendation
Given the users’ behavior and on-chain liquidity, we recommend increasing the supply cap to 80,000 weETH.
wstETH (Polygon)
wstETH has reached 95% supply cap utilization on Polygon, and its borrow cap is at 4% capacity.
Supply Distribution
Most of the top wstETH suppliers borrow WETH, with a few maintaining deposit-only positions. The largest two wstETH suppliers represent an outsized proportion of the total market. The largest open positions have low liquidation risk, as the supplied and borrowed assets are closely correlated ETH derivatives.
Overall, WETH represents 95.92% of the value borrowed against wstETH.
Recommendation
Given safe user behavior but strict on-chain liquidity, we recommend increasing the supply cap to 10,500 wstETH.
USDC (Avalanche)
USDC has reached 80% supply cap utilization on Avalanche, and its borrow cap is at 96% capacity.
Supply Distribution
The biggest USDC supplier borrows USDC as it is looping over its position to farm AVAX rewards.
The other major USDC suppliers mostly have supply-only positions or are borrowing small amounts of WETH.e. The biggest position represents an outsized portion of the market.
Given the lack of borrowing or the high correlation of the borrowed assets to the collateral, the major positions pose no liquidation risk.
Overall, USDC represents 85% of the assets borrowed against USDC collateral.
Borrow Distribution
The biggest USDC borrow is also the biggest USDC supplier as it’s looping to farm AVAX rewards.
The other major USDC borrows mostly use BTC or WAVAX as collateral. The biggest position represents a large portion of the market.
Given the looping of the biggest account and the high health score of the other major borrowers, they pose little to no liquidation risk.
Overall, BTC.b represents 39% of the collateral used to borrow USDC.
Recommendation
Given the users’ behavior and on-chain liquidity, we recommend increasing the supply cap to 300,000,000 USDC and the borrow cap to 225,000,000 USDC.
Specification
| Chain | Asset | Current Supply Cap | Recommended Supply Cap | Current Borrow Cap | Recommended Borrow Cap |
|---|---|---|---|---|---|
| Ethereum | weETH | 900,000 | 935,000 | 200,000 | - |
| Arbitrum | weETH | 77,000 | 80,000 | 25,000 | - |
| Polygon | wstETH | 10,000 | 10,500 | 570 | - |
| Avalanche | USDC | 200,000,000 | 300,000,000 | 150,000,000 | 225,000,000 |
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