Summary
A proposal to:
- Increase cbBTC’s borrow cap on Aave’s V3 Ethereum main instance.
- Increase USDS’s supply and borrow cap on Aave’s V3 Ethereum main instance.
cbBTC (Ethereum)
cbBTC has reached 85% borrow cap utilization on Ethereum, and its supply cap is at 47% capacity.
Borrow Distribution
Most of the top cbBTC borrowers use WBTC or WETH collateral. Some of them engage in cbBTC-cbBTC looping. While the collaterals used are varied, they are all heavily liquid, and the top positions maintain safe health scores, with the riskiest one at 1.29. None of the top positions represents a liquidation risk.
Overall, WBTC represents 33% of the collateral value used to borrow cbBTC, while USDC represents 28.8% and WETH 28%.
Recommendation
Given the highly liquid and varied collateral being used to borrow cbBTC, we recommend increasing the borrow cap to 180 cbBTC. 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.
USDS (Ethereum)
Although USDS’s current supply utilization is 45%, the pool was at 100% utilization for a significant portion of last week. We expect demand for USDS on Aave to increase further in the coming days, leading to the caps being quickly reached again.
Supply Distribution
Most of the top USDS suppliers either maintain a supply-only position or use it as collateral to borrow highly correlated assets like GHO, USDC, and sDAI. The liquidation risk for each of the top positions is minimal.
Overall, stablecoins represent over 99% of the value borrowed against USDS collateral, with GHO and USDC being the preferred choices.
Borrow Distribution
Although the borrowing demand is heavily concentrated among the top three USDS borrowers, it does not present a risk since these positions remain relatively small compared to the overall market size. The collaterals used are highly liquid, and the health scores are safe, ranging from 1.14 to 3.24, which further ensures that the top positions don’t pose any liquidation risk.
wstETH is the most common collateral used to borrow USDS, representing over 86% of the collateral value.
Recommendation
Given the consistent user behavior since the deployment of the market and the rapidly growing on-chain supply driven by ongoing Sky incentives, we recommend doubling the supply cap to 200,000,000 USDS and the borrow cap to 180,000,000 USDS to support further market expansion. This increase in supply caps is backed by Chaos Labs’ risk simulations, which take into consideration the ample on-chain liquidity and minimal 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.
Specification
| Chain | Asset | Current Supply Cap | Recommended Supply Cap | Current Borrow Cap | Recommended Borrow Cap |
|---|---|---|---|---|---|
| Ethereum Main | cbBTC | 10,000 | - | 90 | 180 |
| Ethereum Main | USDS | 100,000,000 | 200,000,000 | 90,000,000 | 180,000,000 |
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