[ARFC] Chaos Labs Risk Stewards - Increase Supply and Borrow Caps on V3 Scroll - 06.14.2024

Summary

A proposal to increase the supply and borrow caps on WETH and wstETH on V3 Scroll

Motivation

WETH (Scroll)

WETH supply cap is at 100% utilization with the borrow cap utilization at 58%

Supply Distribution

The top two suppliers are responsible for 33% of the total supply, making the market relatively distributed. They are each borrowing USDC against their WETH collateral, with health scores of 1.32 and 2.39, respectively.

There is relatively little collateral at risk for the market in its current state, and collateral at risk does not increase sharply until ETH drops below $2,6500.

Recommendation

Given on-chain liquidity and user behavior, we recommend increasing the supply and borrow cap by 50%.

wstETH (Scroll)

wstETH supply cap is at 100% utilization with the borrow cap utilization at 56%

Supply Distribution

The top supplier is responsible for 25% of the total supply, borrowing $1.85M in WETH against his $2.06M wstETH collateral, putting the position at minimal risk of liquidation.

In addition, two suppliers within the top ten are borrowing USDC against wstETH, exposing these positions to higher liquidation risk. Collectively, there is $788K in USDC borrowed against wstETH. These positions would be liquidated effectively, given current liquidity levels.

Recommendation

Given on-chain liquidity and user behavior, we recommend doubling the supply cap with no change to the borrow cap

Specification

Chain Asset Current Supply Cap Recommended Supply Cap Current Borrow Cap Recommended Borrow Cap
Scroll WETH 3,000 4,500 2,400 3,600
Scroll wstETH 2,000 4,000 90 No Change

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

1 Like

The transaction for this proposal has now been executed.

Please further increase supply and borrow cap