Summary
A proposal to increase:
Arbitrum
- rETH - supply cap
- LINK - supply cap
Metis
- m.USDC - supply and borrow cap
- m.USDT - supply and borrow cap
- METIS - supply and borrow cap
Motivation
The recommendations below were made utilizing Chaos’ supply and borrow cap methodologies and after analyzing user positions for each asset.
Arbitrum
rETH
The supply cap for rETH on Arbitrum is currently at 90% utilization.
We recommend doubling the supply cap from 1.7K to 3.4K.
LINK
The supply cap for LINK on Arbitrum is currently at 79% utilization.
As we recommend capping the supply cap at 50% of the total on-chain circulating supply, we recommend increasing the supply cap from 1.3M to 1.45M.
Metis
Following the launch of the Metis Incentive Program on Aave, which currently incentivizes borrowing of all Metis-listed assets as well as the supply of METIS and WETH, we’ve observed full utilization of the supply caps and significant utilization of borrow caps.
While the program has driven increased usage, it’s worth noting that a substantial portion of this activity involves users looping the same asset to capture yield. Below, We provide recommendations for increasing some of these caps after analyzing user positions and on-chain liquidity for each asset and utilizing our supply and borrow cap methodology.
m.USDC
Resource: Chaos Labs Risk Platform
m.USDT
Resource: Chaos Labs Risk Platform
Utilizing our stress testing framework, we do not observe VaR while increasing the caps for USDC and USDT, as the main use case observed is looping the same asset to earn incentives. Given the on-chain liquidity observed we recommend doubling both supply and borrow caps for these assets.
METIS
As Metis is listed as a non-collateral asset, we recommend increasing the current supply cap to 360K METIS and doubling the borrow cap to 8K.
WETH
Considering the limited on-chain liquidity of WETH, which is essential for supporting liquidations, we advise against further increasing the supply and borrow cap. Although small, our stress tests indicate an increase in VaR with higher caps. Therefore, we recommend contemplating increasing the supply cap only after observing an improvement in DEX liquidity.
m.DAI
We do not recommend increasing the supply and borrow cap of m.DAI as it currently represents over 50% of the total circulating supply on-chain.
Specification
| Chain | Asset | Current Supply Cap | Recommended Supply Cap | Current Borrow Cap | Recommended Borrow Cap |
|---|---|---|---|---|---|
| Arbitrum | rETH | 1,700 | 3,400 | 340 | No Change |
| Arbitrum | LINK | 1,300,000 | 1,450,000 | 242,200 | No Change |
| Metis | m.USDC | 2,000,000 | 4,000,000 | 2,000,000 | 4,000,000 |
| Metis | m.USDT | 2,000,000 | 4,000,000 | 2,000,000 | 4,000,000 |
| Metis | METIS | 240,000 | 360,000 | 4,000 | 8,000 |
Next Steps
Once we receive feedback from @Gauntlet on the above recommendations, we will be able to move forward to implement these updates via the Risk Steward process.