Summary
A proposal to:
- Increase tBTC’s supply cap on Aave’s V3 Ethereum main instance.
- Increase GNO’s supply and borrow cap on Aave’s V3 Gnosis instance.
- Increase USDS’s supply cap on Aave’s V3 Ethereum Lido instance.
- Increase UNI’s supply cap on Aave’s V3 Ethereum main instance.
tBTC (Ethereum)
tBTC has reached 100% supply cap utilization on Ethereum, and its borrow cap is at 1% capacity.
Supply Distribution
Most of the top tBTC suppliers borrow USDC or WETH. While the biggest position represents a significant portion of the market, its health score is high (1.56). There is a position with a health score of 1.01, that uses wstETH and tBTC as collateral and borrows WETH. Since tBTC is a minor portion of that position, a liquidation is unlikely unless there’s a significant price shift. The rest of the positions are healthy, with scores above 1.33.
Overall, stablecoins represent 90.44% of the value borrowed against tBTC collateral.
Recommendation
Given the market’s safe positions and the sufficient on-chain supply of 4,000 tBTC, we recommend increasing the supply cap to 1,100 tBTC. This increase is backed by Chaos Labs’ risk simulations, which consider the user’s behavior, on-chain liquidity, and price impact, ensuring that the higher cap does not introduce additional risk to the platform.
GNO (Gnosis)
GNO has reached 100% supply cap utilization on Gnosis, and its borrow cap is at 89% capacity. The debt ceiling of GNO is utilized at 69%.
Supply Distribution
Most top GNO suppliers either maintain a supply-only position or borrow stablecoins with very high health scores. The distribution is not significantly concentrated, and most positions pose little to no liquidation risk.
Overall, USDC represents 63% of the value borrowed against GNO collateral.
Borrow Distribution
The biggest GNO borrowers mostly use wstETH as collateral. While the biggest wallet represents a significant portion of the market, it doesn’t pose a high risk, given the safe health score and the highly liquid collateral used.
ETH-correlated assets account for 71.70% of the total collateral used to borrow GHO, with stablecoins making up for the rest.
Liquidity
The DEX liquidity of GNO under the liquidation bonus price impact is quite scarce, but given the safe positioning of suppliers, this does not pose a significant risk.
Recommendation
Considering the extremely safe positions of both suppliers and borrowers, we recommend setting a supply cap of 90,000 GNO and a borrow cap of 10,000 GNO. This increase in supply cap is backed by Chaos Labs’ risk simulations, which consider the user’s behavior, on-chain liquidity, and price impact, ensuring that the higher cap does not introduce additional risk to the platform. While the borrow cap would usually be determined as a combination of the kink and the supply cap, we only proceed with increases after we see consistent utilization, and we aim to gradually reach the kink over time if the market shows sufficient demand.
USDS (Ethereum)
USDS has reached 100% supply cap utilization on the Ethereum Lido instance, and its borrow cap is at 23% capacity.
Supply Distribution
A single wallet maintains a supply-only position and provides the entirety of the USDS supply. This user poses no liquidation risk.
Borrow Distribution
The major USDS borrowers use wstETH and WETH collateral. The biggest position represents a significant portion of the collateral used but not a significant portion of the borrowed supply.
Every position maintains a high health score and poses little liquidation risk.
Recommendation
As the market currently poses no risk and the on-chain supply is rapidly growing thanks to ongoing Sky incentives, we recommend doubling the supply cap to 100,000,000 USDS and borrowing the cap to 90,000,000 USDS to support further market expansion. This increase in supply caps is backed by Chaos Labs’ risk simulations, which consider the user’s behavior, on-chain liquidity, and 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.
UNI (Ethereum)
USDS has reached 99% supply cap utilization on the Ethereum instance, and its borrow cap is at 5% capacity. UNI’s debt ceiling is utilized at 62%.
Supply Distribution
Most top suppliers use UNI collateral to borrow stablecoins, such as USDC and USDT. The two biggest positions represent a significant portion of the market, as together, they make up 80.2% of the UNI supply and 86% of the debt ceiling. While those positions show a significant supply concentration, they maintain safe health scores and don’t pose significant risks. The other top users either maintain supply-only positions or very high health scores. No position represents an immediate liquidation risk.
Overall, USDC represents 62.29% of the value borrowed against UNI.
Recommendation
Given the suppliers’ safe positions, we recommend increasing the supply cap to 6,000,000 UNI. This increase is backed by Chaos Labs’ risk simulations, which consider the user’s behavior, on-chain liquidity, and price impact, ensuring that the higher cap does not introduce additional risk to the platform.
Specification
| Chain | Asset | Current Supply Cap | Recommended Supply Cap | Current Borrow Cap | Recommended Borrow Cap |
|---|---|---|---|---|---|
| Ethereum | tBTC | 550 | 1,100 | 275 | - |
| Gnosis | GNO | 60,000 | 90,000 | 6,500 | 10,000 |
| Ethereum Lido | USDS | 50,000,000 | 100,000,000 | 45,000,000 | 90,000,000 |
| Ethereum | UNI | 4,000,000 | 6,000,000 | 330,000 | - |
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