Summary
A proposal to:
- Increase sUSDe’s supply cap on Aave’s V3 Ethereum main instance.
- Increase WBTC’s supply cap on Aave’s V3 Ethereum main instance.
- Increase rsETH’s supply cap on Aave’s V3 Ethereum main instance.
- Increase USDS’s supply and borrow cap on Aave’s V3 Ethereum main instance.
sUSDe (Ethereum-Main)
sUSDe has reached 99% supply cap utilization; the asset is not borrowable.
Supply Distribution
The supply of sUSDe is highly distributed, with the largest position accounting for just 6.3% of the total supply.
The asset is used entirely to borrow stablecoins, significantly reducing the likelihood of liquidations, as the assets are highly correlated.
Liquidity
Additionally, the asset’s liquidity has significantly improved in recent weeks, with a 25M sUSDe for USDT swap able to be completed at 1% price impact.
This liquidity is sufficient to support a supply cap increase, especially when considering the limited risk of liquidations.
Recommendation
Given user behavior and on-chain liquidity, we recommend doubling the supply cap. This increase is backed by Chaos Labs’ risk simulations, which consider user behavior, on-chain liquidity, and price impact, ensuring that the higher cap does not introduce additional risk to the platform.
WBTC (Ethereum-Main)
WBTC has reached 93% supply cap utilization, and its borrow cap is at 10% capacity.
Supply Distribution
The supply of WBTC is highly distributed, with the largest supplier accounting for 3.7% of the total supply. This distribution reduces the risk that would come from any one supplier representing an outsized portion of the market.
The top suppliers are also borrowing various assets, primarily USDT and USDC, with varying health scores, reducing the risk of widespread liquidations. USDT and USDT are the most popular borrowed assets against WBTC.
Because suppliers have varying health scores, the collateral at risk slope is gradual and does not rise above $20M until WBTC falls to $65,000.
Liquidity
WBTC’s on-chain liquidity has contracted in recent weeks, with a 500 WBTC (nearly $50M) for USDT swap can be completed with 10% price slippage. Given BTC’s liquidity off-chain, it is likely that DEX liquidity would quickly be refilled following any large swaps.
However, the downward liquidity trend leads us to recommend a smaller supply cap increase than would otherwise be warranted. We will continue to monitor this trend and will provide recommendations accordingly.
Recommendation
Given user behavior and on-chain liquidity, we recommend increasing the supply cap by 2K WBTC. Chaos Labs’ risk simulations again support this increase.
USDS (Ethereum-Main)
USDS has reached 90% supply cap utilization, and its borrow cap is at 81% capacity.
Supply Distribution
The supply of USDS is also highly distributed, with no supplier accounting for more than 6M USDS. The top users primarily borrow other stablecoins against their USDS, reducing the likelihood of liquidation.
Stablecoins represent most of the value borrowed against USDS.
Borrow Distribution
Borrows of USDS are also well distributed, with the largest being just 1.8M USDS. Given the variety of collateral assets and health scores, these borrow positions do not present a risk to the protocol.
Liquidity
A 55M USDS for USDT swap can be completed for just 4.85% slippage, sufficient liquidity to support cap increases.
Recommendation
Given user behavior and on-chain liquidity, we recommend doubling the supply and borrow caps. This increase is backed by Chaos Labs’ risk simulations, which consider user behavior, on-chain liquidity, and price impact, ensuring that the higher cap does not introduce additional risk to the platform.
rsETH (Ethereum-Main)
rsETH reached its supply cap following a deposit from Cian, a yield strategy platform that uses the collateral for leveraged yield farming.
Supply Distribution
The supply cap is filled by an address associated with Cian’s rsETH Yield Layer strategy. Given this strategy’s setup, especially the high correlation between the two assets, this concentration and position do not present a serious risk to the protocol.
Liquidity
rsETH’s on-chain DEX liquidity has fluctuated over the past few months, with a 3K swap for WETH can be completed for 1% price slippage.
While liquidations are unlikely, our simulations find that this liquidity is sufficient to support a supply cap increase.
Recommendation
Given user behavior and on-chain liquidity, we recommend doubling the supply cap.
Specification
| Chain | Instance | Asset | Current Supply Cap | Recommended Supply Cap | Current Borrow Cap | Recommended Borrow Cap |
|---|---|---|---|---|---|---|
| Ethereum | Main | sUSDe | 32,000,000 | 64,000,000 | - | - |
| Ethereum | Main | WBTC | 43,000 | 45,000 | 28,000 | - |
| Ethereum | Main | USDS | 200,000,000 | 400,000,000 | 180,000,000 | 360,000,000 |
| Ethereum | Main | rsETH | 19,000 | 38,000 | 1,900 | - |
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