Summary
A proposal to:
- Increase USDC’s supply and borrow caps
- Increase WETH’s supply and borrow caps
Motivation
The following recommendations were made using Chaos’ supply and borrow cap methodologies after analyzing user positions for the asset.
USDC
USDC’s supply and borrow caps stand at 85% and 93% utilization, respectively.
Supply Distribution
Total supply and borrow have grown significantly since the asset was listed on Scroll.
The largest supplier supplies $2.3M of the $3.4M USDC in the market. They are borrowing $1.6M WETH against this collateral, with a health score of 1.15. Should WETH’s price increase, this position would be at risk of liquidation.
However, on-chain liquidity does not indicate that this would put the protocol at risk. Additionally, this is virtually the only borrowing against USDC collateral.
Borrow Distribution
The top borrowers of USDC are relatively well distributed, with WETH being the most popular collateral against USDC borrows.
Recommendations
Given the composition of user positions and on-chain liquidity, we recommend increasing the supply cap to 5M and doubling the borrow cap to 3.6M. While the supply cap could be increased further, we recommend a modest increase in this proposal to minimize the spread between the supply and borrow caps.
WETH
WETH’s supply and borrow cap utilization stands at 83% and 99%, respectively.
Borrows have grown significantly in the past month.
Supply Distribution
The top suppliers of WETH are well distributed, with most carrying health scores between 1 and 2.
USDC represents the vast majority of assets borrowed against WETH collateral.
Borrow Distribution
The largest borrower is the same user discussed above. Because of this position, significant collateral is at risk should WETH’s price breach $4,100.
However, as discussed above, the on-chain liquidity at this time is sufficient to liquidate this position without risk to the protocol.
Recommendations
Given the composition of user positions and on-chain liquidity, we recommend increasing the supply cap to 2K WETH and the borrow cap to 1.2K WETH. While the supply cap could be increased further, we recommend a modest increase in this proposal to minimize the spread between the supply and borrow caps.
Specification
| Chain | Asset | Current Supply Cap | Recommended Supply Cap | Current Borrow Cap | Recommended Borrow Cap |
|---|---|---|---|---|---|
| Scroll | USDC | 4,000,000 | 5,000,000 | 1,800,000 | 3,600,000 |
| Scroll | WETH | 1,500 | 2,000 | 600 | 1,200 |
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