Summary
A proposal to:
- Increase USDC supply and borrow caps on Aave’s V3 Avalanche deployment.
- Increase ARB supply cap on Aave’s V3 Arbitrum deployment.
- Increase weETH supply cap on Aave’s V3 Ethereum Main deployment.
- Increase wstETH supply cap on Aave’s V3 Polygon deployment.
Motivation
USDC (Avalanche)
USDC has reached 81% supply cap utilization on Avalanche, and its borrow cap is at 85% capacity.
Supply Distribution
Most top USDC suppliers maintain deposit-only positions or borrow USDT, with a few borrowing USDC. The largest USDC supplier represents a significant portion of the total market, indicating a concentrated supply distribution. The largest open positions generally have low liquidation risk, primarily involving looping stablecoins or deposit-only positions.
Overall, USDC represents 81.69% of the value borrowed against USDC.
Borrow Distribution
Most top USDC borrowers use USDC as collateral, some using USDT or a combination of both. The largest USDC borrower represents a significant portion of the total market, indicating a concentration of borrowing activity. The largest open positions generally have low liquidation risk, primarily involving stablecoins (USDC and USDt) or moderately volatile assets like BTC.b.
In aggregate, USDC represents 43.66% of the value backing USDC loans.
Recommendation
Given on-chain liquidity and users’ behavior, we recommend increasing the supply cap to 200,000,000 USDC and the borrow cap to 150,000,000 USDC.
ARB (Arbitrum)
ARB has reached 82% supply cap utilization on Arbitrum, and its borrow cap is at 48% capacity.
Supply Distribution
Most top ARB suppliers maintain a combination of deposit-only positions and borrowing of stablecoins (USDT and USDC) or WETH, as in the case of the biggest position. The two largest ARB suppliers represent a significant portion of the total market, indicating a concentrated supply distribution. The largest open positions generally have low liquidation risk, as they generally have a safe health score or are deposit-only positions.
Overall, USDT represents 42.17% of the value borrowed against ARB.
Recommendation
Given users’ behavior and on-chain liquidity, we recommend increasing the supply cap to 60,000,000 ARB.
weETH (Ethereum)
weETH has reached 100% supply cap utilization on Ethereum, and its borrow cap is at 39% capacity.
Supply Distribution
Most of the top weETH suppliers also borrow WETH or weETH. The largest open positions have low liquidation risk, as the supplied and borrowed assets are identical or closely correlated ETH derivatives.
Overall, WETH represents 86.62% of the value borrowed against weETH.
Recommendation
Given the available WETH liquidity and users’ behavior, we recommend increasing the supply cap to 900,000 weETH.
wstETH (Polygon)
wstETH has reached 100% supply cap utilization on Polygon, and its borrow cap is at 4% capacity.
Supply Distribution
Most top wstETH suppliers borrow WETH, with a few maintaining deposit-only positions. The largest wstETH supplier represents a significant portion of the total market, with supply becoming more distributed among smaller wallets further down the list. The largest open positions have low liquidation risk due to the close correlation between wstETH and WETH.
Overall, WETH represents 93.86% of the value borrowed against wstETH.
Recommendation
Given scarce on-chain liquidity but safe users’ behavior, we recommend increasing the supply cap to 10,000 wstETH.
Specification
| Chain | Asset | Current Supply Cap | Recommended Supply Cap | Current Borrow Cap | Recommended Borrow Cap |
|---|---|---|---|---|---|
| Avalanche | USDC | 170,000,000 | 200,000,000 | 130,000,000 | 150,000,000 |
| Arbitrum | ARB | 40,000,000 | 60,000,000 | 16,500,000 | - |
| Ethereum | weETH | 840,000 | 900,000 | 200,000 | - |
| Polygon | wstETH | 8,800 | 10,000 | 570 | - |
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