Summary
A proposal to:
- Increase rsETH’s supply cap on Aave’s V3 Ethereum main instance.
- Increase sUSDe’s supply cap on Aave’s V3 Ethereum main instance.
- Increase cbBTC’s supply and borrow cap on Aave’s V3 Ethereum main instance.
- Increase weETH’s supply cap on Aave’s V3 Base main instance.
rsETH (Ethereum-Main)
rsETH has reached 100% supply cap utilization on the Ethereum Main instance, while its borrow cap utilization remains at 0%. The rapid filling of the previous supply cap increase highlights strong demand for rsETH.
Supply Distribution
The supply distribution of rsETH is currently dominated by two large suppliers. The largest address accounts for 68% of the total supply, while the second-largest address holds 27%. As we analyzed in our previous report on rsETH, the top supplier position represents the CIAN rsETH/ETHx leverage vault. Although the CIAN vault is managed as a single position, it is backed by numerous suppliers, thereby not presenting any significant concentration risk. At the same time, the liquidation risk of the second-largest position is also limited because its collateral and borrowed assets are highly correlated.
Given the strong correlation between collateral and borrowed assets, the rsETH supply distribution poses limited liquidation risk. As shown below, wstETH accounts for 99.55% of the borrow distribution, indicating that rsETH is primarily used as collateral for highly correlated assets, with limited borrowing of stablecoins or highly volatile assets.
Liquidity
Although the DEX liquidity for rsETH has decreased since September, the vast majority of assets borrowed are correlated with rsETH, reducing liquidation risk. Moreover, rsETH liquidity has remained stable since October, further reducing any cause for concern.
Recommendation
Given user behavior and on-chain liquidity, we recommend increasing the supply cap to 304K. 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.
sUSDe (Ethereum-Main)
sUSDe has reached 100% supply cap utilization on the Ethereum Main instance. The rapid filling of the previous supply cap increase highlights strong demand for sUSDe.
Supply Distribution
The top supplier position has supplied $42 million worth of sUSDe, representing 16% of the total supply, which does not pose significant concentration risk. Additionally, all top suppliers have borrowed stablecoins such as USDC, USDS, and USDT. Given the high correlation between these stablecoins and sUSDe, the top suppliers face limited liquidation risk.
From the below chart, USDS shows the strongest demand for borrowing against sUSDe, representing 64.4% of the value borrowed.
Liquidity
Since USDS was launched, its liquidity against sUSDe has increased significantly. Currently, a 25M sUSDe-for-USDS swap can be completed with under 1% price slippage, demonstrating that sUSDe has sufficient liquidity to handle severe market conditions.
Recommendation
Given user behavior and on-chain liquidity, we recommend doubling the supply cap. This increase is again backed by Chaos Labs’ risk simulations.
cbBTC(Ethereum-Main)
cbBTC has reached 80% supply cap utilization and 100% borrow cap utilization.
Supply Distribution
The supply distribution of cbBTC poses no significant liquidation risks. The top supplier holds 40.07% of the total cbBTC, presenting some concentration risk. However, the position’s high health score (5.57) and active management minimize the liquidation risk. Additionally, each of the remaining top suppliers has a health score above 1.1, indicating limited liquidation risk.
Overall, stablecoins make up the majority of borrowed assets against cbBTC, with USDC accounting for 63.83% and USDT for 17.3%.
Borrow Distribution
The top borrowers of cbBTC also pose minimal liquidation risk, with each position maintaining a high health score (above 1.4).
A significant portion of assets borrowed against cbBTC includes stablecoins, WBTC, and WETH. Overall, stablecoins represent 64.82% of the value borrowed against cbBTC, with USDS accounting for 52.1% of the total.
Liquidity
cbBTC’s liquidity has increased since mid-October, with a 350 cbBTC for USDC swap able to be completed under 10% price slippage. The asset’s liquidity profile — including off-chain liquidity — and current user behavior allows us to recommend cap increases.
Recommendation
Given user behavior and liquidity, we recommend increasing the supply cap to 13K and the borrow cap to 360. 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.
weETH (Base-Main)
weETH has reached 93% supply cap utilization while its borrow cap utilization is 12% utilized.
Supply Distribution
The supply distribution of weETH is fairly distributed, with limited risk of liquidation because of the correlation between collateral and debt assets. The top supplier position has supplied $21.84 million worth of weETH, representing approximately 15% of the total supply, which does not pose any concentration risk.
Liquidity
weETH’s on-chain liquidity has been improving, with a 400 weETH for WETH swap now incurring about 1% price slippage. While this is low relative to the size of the market, the dominant use case and lack of liquidation risk make this sufficient to recommend a supply cap increase.
Recommendation
Given user behavior and on-chain liquidity, we recommend increasing the supply cap to 50K. 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.
Specification
| Chain | Instance | Asset | Current Supply Cap | Recommended Supply Cap | Current Borrow Cap | Recommended Borrow Cap |
|---|---|---|---|---|---|---|
| Ethereum | Main | rsETH | 152,000 | 304,000 | 1,900 | - |
| Ethereum | Main | sUSDe | 256,000,000 | 512,000,000 | - | - |
| Ethereum | Main | cbBTC | 12,500 | 13,000 | 180 | 360 |
| Base | Main | weETH | 40,000 | 50,000 | 9,000 | - |
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
