Summary
A proposal to:
- Increase sUSDe’s supply cap on Aave’s V3 Ethereum main instance.
- Increase wstETH’s supply and borrow caps on Aave’s V3 Ethereum main instance.
- Increase rsETH’s supply cap on Aave’s V3 Ethereum main instance.
- Increase USDT’s supply and borrow caps on Aave’s V3 Ethereum main instance.
- Increase cbBTC’s supply cap on Aave’s V3 Ethereum main instance.
sUSDe (Ethereum-Main)
sUSDe has reached 100% supply cap utilization; the asset is not borrowable.
Supply Distribution
The supply of sUSDe has become more concentrated since the last cap increase, with the largest supplier now representing 31.8% of the total supply.
This user is supplying sUSDe on both the Main and Lido instances, borrowing primarily USDS against this collateral.
The asset is used entirely to borrow stablecoins, significantly reducing the likelihood of liquidations, as the assets are highly correlated. Given the high correlation of these assets, this user does not present a risk to the protocol.
Liquidity
Additionally, the asset’s liquidity continued to improve since our last recommendation.
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.
wstETH (Ethereum-Main)
wstETH has reached 83% supply cap utilization and 84% borrow cap utilization.
Supply Distribution
Supply of wstETH is relatively distributed, the largest position is 102.46K wstETH out of 1.04M in the market. This user is borrowing WETH against their collateral, significantly reducing the risk of liquidation given the assets’ correlation.
Other large users who are uncorrelated assets (USDC and WBTC, primarily) maintain strong health scores, reducing the risk of large liquidations because of ETH price changes.
Borrow Distribution
Following the introduction of a Liquid E-Mode facilitating wstETH borrowing using rsETH collateral, the largest borrower of wstETH is now a CIAN vault using rsETH to borrow wstETH.
Given the correlation of these assets this position presents little risk to the protocol.
Liquidity
wstETH continues to maintain strong liquidity on Ethereum, with a 30K wstETH for USDC swap incurring less than 10% price slippage.
Recommendation
Given the relatively slow growth in supply, we recommend a 10% cap increase to ensure the market can expand as supply APY is expected to increase. We recommend doubling the borrow cap.
rsETH (Ethereum-Main)
rsETH has reached 100% supply cap utilization, and its borrow cap is at 0% utilization.
Supply Distribution
The supply of rsETH is highly concentrated in a single position, the CIAN vault mentioned above.
This strategy has not yet allocated all of its rsETH to Aave, indicating that future deposits are likely.
Additionally, it has roughly 11.5K rsETH that can be deposited before its cap is reached, again increasing the possibility that its associated Aave position will grow. However, we find that it prevents limited risk to the protocol given the correlation between the assets.
Liquidity
rsETH’s on-chain liquidity has retracted following an increase in September. However, we find that this liquidity is still sufficient to support a cap increase given user behavior.
Recommendation
Given user behavior and on-chain liquidity, we recommend doubling the supply cap. Chaos Labs’ risk simulations again support this increase.
USDT (Ethereum-Main)
USDT has reached 91% supply cap utilization, and its borrow cap is at 94% capacity.
Supply Distribution
The supply of USDT is somewhat concentrated, with the largest supplier depositing over $575M USDT; they are not borrowing any assets against this collateral. All of the 10 largest suppliers are deposit-only, reducing the risk of large liquidations.
Borrows against USDT are limited given the size of the market, with just $34.5M borrowed against $2.29B of collateral, again reducing the risk of liquidations.
Borrow Distribution
Borrows are highly distributed, with the largest being just over $100M USDT against $145M WBTC. The top USDT borrow positions are against different, highly liquid collateral assets, including WETH, WBTC, and weETH, reducing the risk presented by these borrow positions.
Given the varying health scores and liquid collateral, we do not find that these positions present a risk to the protocol.
Recommendation
Given user behavior and on-chain liquidity, we recommend increasing the supply cap to 3.5B and the borrow cap to 3.25B. 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.
cbBTC (Ethereum-Main)
cbBTC has reached 93% supply cap utilization and 54% borrow cap utilization.
Supply Distribution
The market is heavily concentrated, with a single user depositing $380M cbBTC and borrowing $12.6M USDC against it. Given the extremely high health score, this user does not present a major risk to the protocol.
Other top users are borrowing stablecoins against cbBTC, and thus are at risk should BTC’s price fall. However, their varying health scores reduces the risk of large liquidation events, with a relatively smooth collateral at risk slope.
Liquidity
cbBTC’s on-chain DEX liquidity has improved since late October, with a 300 cbBTC for USDT swap able to be completed under 10% price slippage.
Recommendation
Given user behavior and on-chain liquidity, our simulations indicate that we can recommend increasing the supply cap by 25%.
Specification
| Chain | Instance | Asset | Current Supply Cap | Recommended Supply Cap | Current Borrow Cap | Recommended Borrow Cap |
|---|---|---|---|---|---|---|
| Ethereum | Main | sUSDe | 64,000,000 | 128,000,000 | - | - |
| Ethereum | Main | wstETH | 1,250,000 | 1,375,000 | 60,000 | 120,000 |
| Ethereum | Main | rsETH | 38,000 | 76,000 | 1,900 | - |
| Ethereum | Main | USDT | 2,500,000,000 | 3,500,000,000 | 2,250,000,000 | 3,250,000,000 |
| Ethereum | Main | cbBTC | 10,000 | 12,500 | 180 | - |
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