Summary
A proposal to:
- Increase WETH’s supply and borrow cap on Aave’s V3 Scroll deployment.
- Increase weETH’s supply cap on Aave’s V3 Scroll deployment.
- Increase weETH’s supply cap on Aave’s V3 Base deployment.
- Increase weETH’s supply cap on Aave’s V3 Ethereum deployment.
- Increase GHO’s supply and borrow caps on Aave’s V3 Arbitrum deployment.
WETH (Scroll)
WETH has reached 80% supply cap utilization on Base, and its borrow cap is at 89% capacity.
Supply Distribution
Most of the top WETH suppliers use it as collateral to borrow weETH or USDC. Some of the top positions are supply-only. All of the top positions maintain a safe health score and don’t pose a significant liquidation risk.
Overall, wstETH represents 41.24% of the value borrowed against WETH.
Borrow Distribution
Most of the top WETH borrowers use LSTs, such as weETH and wstETH, as collateral. There is an even borrow distribution, and no wallet represents an outsized portion of the market. All of the top positions use highly correlated assets and don’t pose a significant liquidation risk.
Overall weETH represents 53.18% of the collateral used to borrow WETH.
Recommendation
Given the safe users’ behavior, along with limiting on-chain supply, we recommend increasing the supply cap to 90,000 WETH and the borrow cap to 81,000 WETH.
weETH (Scroll)
weETH has reached 100% supply cap utilization on Scroll, and its borrow cap is at 65% capacity.
Supply Distribution
Most of the top weETH suppliers borrow WETH. The biggest wallets represent an outsized portion of the total supply. Given the high correlation between the borrowed assets and the collateral, the top wallets pose little liquidation risk.
Overall, WETH represents 99.27% of the value borrowed against weETH.
Recommendation
We recommend increasing the supply cap to 36,000 weETH; we do not recommend a larger increase because of limited available WETH borrow liquidity.
weETH (Base)
weETH has reached 99% supply cap utilization on Base, and its borrow cap is at 13% capacity.
Supply Distribution
Most of the top weETH suppliers borrow WETH. The biggest wallets represent an outsized portion of the total supply. Given the high correlation between the borrowed assets and the collateral, the top wallets pose little liquidation risk.
Overall, WETH represents 95.54% of the value borrowed against weETH.
Recommendation
We recommend increasing the supply cap to 23,000 weETH; we do not recommend a larger increase because of limited available WETH borrow liquidity.
weETH (Ethereum)
weETH has reached 100% supply cap utilization on Ethereum, and its borrow cap is at 20% capacity.
Supply Distribution
Most of the top weETH suppliers borrow WETH. No position represents an outsized portion of the total supply, and the supply is evenly distributed among the top holders. Given the high correlation between the borrowed assets and the collateral, the top wallets pose little liquidation risk.
Overall, WETH represents 92.51% of the value borrowed against weETH.
Recommendation
We recommend increasing the supply cap to 950,000 weETH; we do not recommend a larger increase because of limited available WETH borrow liquidity.
GHO (Arbitrum)
GHO has reached 91.09% supply cap utilization on Arbitrum, and its borrow cap is at 82.62% capacity.
Supply Distribution
While GHO cannot be used as collateral, most top GHO suppliers are redepositing after borrowing from the same pool, effectively farming the pool’s ARB incentives. The biggest wallet represents an outsized portion of the total supply. No position poses a liquidation risk.
Borrow Distribution
Most of the top GHO borrowers are using USDC or WBTC as collateral. The largest wallet represents an outsized portion of the total borrow demand but poses little liquidation risk given the high asset correlation and the safe health score. The other top wallets maintain mixed health scores but use highly liquid collaterals, minimizing the liquidation risk.
Overall, USDC represents 53.7% of the collateral used to borrow GHO.
Recommendation
Given user behavior and on-chain liquidity, we recommend increasing the supply cap to 25,000,000 GHO and the borrow cap to 22,500,000 GHO.
Specification
| Chain | Asset | Current Supply Cap | Recommended Supply Cap | Current Borrow Cap | Recommended Borrow Cap |
|---|---|---|---|---|---|
| Scroll | WETH | 80,000 | 90,000 | 63,000 | 81,000 |
| Scroll | weETH | 35,000 | 36,000 | 6,400 | - |
| Base | weETH | 22,500 | 23,000 | 9,000 | - |
| Ethereum | weETH | 935,000 | 950,000 | 200,000 | - |
| Arbitrum | GHO | 20,000,000 | 25,000,000 | 18,000,000 | 22,500,000 |
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