Summary
A proposal to:
- Increase WETH’s supply and borrow cap on Aave’s V3 Ethereum main instance.
- Increase tBTC’s supply cap on Aave’s V3 Ethereum main instance.
- Increase sUSDe’s supply cap on Aave’s V3 Ethereum main instance.
WETH (Ethereum)
WETH has reached 79% supply cap utilization on Ethereum, and its borrow cap is at 90% capacity.
Supply Distribution
Most top WETH suppliers use their holdings as collateral to borrow stablecoins like USDT and USDC. The market distribution is balanced, with no single position representing an outsized share. Additionally, all top supply positions maintain health scores above 1.3, indicating that none poses a significant liquidation risk.
Overall, stablecoin represents 88% of the value borrowed against WETH.
Borrow Distribution
The majority of the top WETH borrowers use weETH or wstETH as collateral, given the high correlation of the collateral and borrowed assets, none of these positions poses a liquidation risk.
Overall weETH represents 66% and wstETH 31% of collateral value used to borrow WETH.
Recommendation
Given the safe user’s behaviour of WETH suppliers and high correlation of the assets used to borrow WETH, we recommend increasing the supply cap to 2,000,000 WETH and the borrow cap to 1,800,000 WETH. 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.
tBTC (Ethereum)
tBTC has reached 85% supply cap utilization on Ethereum, and its borrow cap is at 2% capacity.
Supply Distribution
Most of the top tBTC suppliers maintain supply-only positions, altho the biggest two biggest positions, that represent an outsized share of the market, use it as collateral to borrow USDC. Both positions mantain a health score over 2, indicating safe user’s behaviour. No top position poses a significant liquidation risk.
Overall, USDC represents 77% of the value borrowed against tBTC.
Recommendation
Given the safe user’s behaviour, we recommend increasing the supply cap to 2,200 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.
sUSDe (Ethereum)
sUSDe has reached 100% supply cap utilization on Ethereum, and its Isolated Debt Ceiling is at 7% capacity.
Supply Distribution
Most of the top sUSDe suppliers use it as collateral to borrow USDT and other stablecoins such as USDe and USDC. Given the high correlation between the collateral and borrowed assets, none of the top position pose a liquidation risk, despite mantaining health scores below 1.2.
Overall, USDT represents 74% of the value borrowed against sUSDe.
Liquidity
The buy liquidity available for sUSDe increased significantly over the last month and its sufficent to handle any position at risk of liquidation.
Recommendation
Given the high correlation between collateral and borrowed assets and the recent increase in liquidity, we recommend increasing the supply cap to 8,000,000 sUSDe. 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 Main | WETH | 1,800,000 | 2,000,000 | 1,400,000 | 1,800,000 |
| Ethereum Main | tBTC | 1,100 | 2,200 | 275 | - |
| Ethereum Main | sUSDe | 4,000,000 | 8,000,000 | - | - |
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