Summary
A proposal to:
- Increase cbBTC’s supply caps on Aave’s V3 Ethereum deployment.
- Increase USDS’s supply and borrow caps on Aave’s V3 Ethereum Main deployment.
cbBTC (Ethereum)
cbBTC has reached 100% supply cap utilization on Ethereum, and its borrow cap is at 41% capacity.
The previous cap increase was filled within one day as demands exceeded expectations.
Supply Distribution
An analysis of the top cbBTC suppliers indicates that most suppliers leverage their holdings to borrow stablecoins such as USDT, GHO, and USDC. The supply is notably concentrated, with the largest supplier holding nearly 70% of the total supply and maintaining a supply-only position. The remaining suppliers exhibit a range of health scores; for instance, the third-largest supplier currently has a health score of 1.06. While this is a risky health score, the user has been actively managing their position, reducing the risk of liquidation.
Overall, USDC represents 60.75% and USDT 33% of the value borrowed against cbBTC collateral.
Recommendation
Given the correlation to and liquidity against WBTC discussed in this post, as well as the efficiency of cbBTC redemption through Coinbase, Chaos Labs considers cbBTC’s liquidity sufficient to recommend a supply cap increase to 4,800 cbBTC. This cap will facilitate an increase in cbBTC’s on-chain supply.
USDS (Ethereum)
USDS has reached 89% supply cap utilization on Ethereum, and its borrow cap is at 50% capacity.
Supply Distribution
Most of the top USDS suppliers engage in single-asset looping to leverage returns from rewards and points programs. While this strategy is not the most efficient use of incentives, it significantly reduces the risk posed by the asset and its positions. Since only a small portion of the supply is used as collateral to borrow non-correlated assets, the overall liquidation risk remains minimal.
Overall, stablecoins represent 98.39% of the value borrowed against USDS collateral.
Borrow Distribution
Since looping is the most common use case for USDS, most of the top USDS borrowers are also its top suppliers. A notable exception is three of the top ten borrowers who use wstETH as collateral to borrow USDS, all of whom maintain safe health scores on their positions. As a result, no significant liquidation risk is posed by any of these positions.
USDS accounts for 71.83% of the total collateral used to borrow USDS, with ETH-correlated assets making up 23.2%.
Recommendation
Given the consistent user behavior and the rapidly growing on-chain supply driven by ongoing Sky incentives, we recommend doubling the supply cap to 100,000,000 USDS and borrow cap to 90,000,000 USDS to support further market expansion. This increase in supply caps is backed by Chaos Labs’ risk simulations, which take into consideration the ample on-chain liquidity and minimal price impact, ensuring that the higher cap does not introduce additional risk to the platform. The increase in borrow cap is calculated to enable the market to remain efficient and reach the 90% desired utilization.
Specification
| Chain | Asset | Current Supply Cap | Recommended Supply Cap | Current Borrow Cap | Recommended Borrow Cap |
|---|---|---|---|---|---|
| Ethereum | cbBTC | 2,400 | 4,800 | 90 | - |
| Ethereum | USDS | 50,000,000 | 100,000,000 | 45,000,000 | 90,000,000 |
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