Summary
A proposal to:
- Increase wstETH’s supply cap on Aave’s Polygon deployment.
- Increase WETH’s borrow caps on Aave’s Base deployment.
- Increase weETH’s supply cap on Aave’s Base deployment.
Motivation
wstETH (Polygon)
wstETH has reached 100% supply cap utilization on Polygon, and its borrow cap is at 4% capacity.
Supply Distribution
Most of the top wstETH suppliers borrow WETH, with a few maintaining deposit-only positions. The largest wstETH supplier represents a significant proportion of the total market, with supply concentrated among the top few wallets. The largest open positions have low liquidation risk due to the close correlation between wstETH and WETH.
Overall, WETH represents 95.26% of the value borrowed against wstETH.
Recommendation
Given the high correlation between the borrowed assets, the users’ behavior, and the on-chain liquidity, we recommend increasing the wstETH borrow cap to 7,700 wstETH.
WETH (Base)
WETH has reached 61% supply cap utilization on Base, and its borrow cap is at 100% capacity.
Borrow Distribution
Most top WETH borrowers use weETH as collateral, with some also using wstETH. The largest WETH borrower represents a significant portion of the total market, with their position notably larger than the others shown. The largest open positions have low liquidation risk due to the close correlation between the borrowed WETH and the supplied ETH derivatives (weETH and wstETH) used as collateral.
In aggregate, weETH represents 87.04% of the value backing WETH loans.
Recommendation
Given the users’ behavior and the low risk posed by the positions, we recommend increasing the borrow cap to 36,000 WETH
weETH (Base)
weETH has reached 100% supply cap utilization on Base, and its borrow cap is at 25% capacity.
Supply Distribution
Most of the top weETH suppliers maintain deposit-only positions, with a few engaging in borrowing activities. The largest weETH supplier represents a significant proportion of the total market, indicating a concentrated supply distribution. The largest open positions have low liquidation risk due to the close correlation to the borrowed assets (WETH).
Overall, WETH represents 85.07% of the value borrowed against weETH.
Recommendation
Given the safe users’ positions but restrictive on-chain liquidity, we can recommend increasing the supply cap to 21,000 weETH.
Specification
| Chain | Asset | Current Supply Cap | Recommended Supply Cap | Current Borrow Cap | Recommended Borrow Cap |
|---|---|---|---|---|---|
| Polygon | wstETH | 6,100 | 7,700 | 570 | 570 |
| Base | WETH | 45,000 | 45,000 | 18,000 | 36,000 |
| Base | weETH | 20,000 | 21,000 | 9,000 | 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