[ARFC] - Chaos Labs Risk Stewards - Increase Supply and Borrow Caps on V3 Metis, Arbitrum - 10.03.2023


A proposal to increase:


  • rETH - supply cap
  • LINK - supply cap


  • m.USDC - supply and borrow cap
  • m.USDT - supply and borrow cap
  • METIS - supply and borrow cap


The recommendations below were made utilizing Chaos’ supply and borrow cap methodologies and after analyzing user positions for each asset.



The supply cap for rETH on Arbitrum is currently at 90% utilization.

We recommend doubling the supply cap from 1.7K to 3.4K.


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.


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.


Resource: Chaos Labs Risk Platform


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.


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.


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.


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.


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.


Gauntlet supports these recommendations. Gauntlet would also recommend to increase WETH supply caps on METIS to 450, given ~700 WETH liquidity across the following venues as of 2023-10-04 and relatively strong liquidity in Metis-USDC/USDT pools.

Hermes - WETH/USDC + WETH/Metis (~90 WETH liquidity)
UniMaia - WETH/USDC + WETH/Metis (~300 WETH liquidity)
Netswap - WETH/USDC + WETH/Metis (~280 WETH liquidity)

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We’ve prepared the payload to be executed via the Risk Steward process for this proposal.

Although DEX liquidity is improving, we do not recommend increasing the WETH supply cap in this batch. We continue to monitor the liquidity and will recommend an increase only after observing the liquidity stabilize over a longer period of time.

These updates have been executed via risk steward.

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