[ARFC] Chaos Labs Risk Stewards - Increase Supply and Borrow Caps on V3 Scroll - 06.28.2024

Summary

A proposal to increase the supply and/or borrow caps on the following markets:

  • USDC on Scroll
  • WETH on Scroll
  • wstETH on Scroll

Motivation

Aave was recently added to Scroll’s Sessions campaign, which awards ‘Marks’ to users who deposit assets into Aave’s markets.

Screenshot 2024-06-22 at 2.54.05 PM

Coupled with Aave’s organic deposit growth on Scroll, all markets have grown rapidly, calling for cap increases.

USDC (Scroll)

USDC has reached its supply cap on Scroll following a surge in deposits; its borrow cap stands at 43% utilization.

Untitled - 2024-06-28T103743.024

Untitled - 2024-06-28T103745.291

Supply Distribution

Supply is well distributed, with the top supplier representing just 3.5% of the total market. Most of the top 10 suppliers are not borrowing any assets against collateral, implying minimal risk of liquidation. However, the largest supplier is borrowing WETH against USDC and wstETH collateral, with a low health score of 1.06. This user has been quite active in managing their position, likely reducing the risk of liquidation.

Untitled - 2024-06-28T103747.508

Collateral at risk would exceed $500,000 if USDC’s price fell to $0.80, while on-chain liquidity would likely facilitate efficient liquidations of these positions.

Untitled - 2024-06-28T103749.785

Borrow Distribution

Borrows are also well distributed, and the largest are primarily against WETH and wstETH collateral, putting these positions at risk of liquidation should ETH’s price fall. However, on-chain liquidity would likely support efficient liquidation of these positions.

Untitled - 2024-06-28T103752.325

Recommendation

Given user behavior and on-chain liquidity, we recommend doubling the supply and borrow caps.

WETH (Scroll)

WETH has reached its supply and borrowing caps on Scroll following a rapid increase in supply and borrowing demand.

Untitled - 2024-06-28T103901.405

Untitled - 2024-06-28T103902.723

Supply Distribution

Supply is also well distributed, with the top two suppliers not borrowing against their deposits; in its current state, this market is at limited risk for large-scale liquidations.

Untitled - 2024-06-28T103905.314

Borrow Distribution

Borrows are concentrated, with the top two borrowers borrowing $8.7M and $8.2M, respectively. However, they are borrowing against wstETH, putting these positions at limited risk of liquidation.

Untitled - 2024-06-28T103938.989

Recommendation

Given on-chain liquidity and user distribution, we recommend doubling the supply and borrow cap.

wstETH (Scroll)

Motivation

wstETH has reached its supply and borrow caps on Scroll, calling for increases to both.

Untitled - 2024-06-28T103941.129

Untitled - 2024-06-28T103943.070

Supply Distribution

The top two suppliers are responsible for $9.7M and $9M in deposits, respectively. They are borrowing WETH against their collateral, putting these positions at limited risk of liquidation. Only two users in the top 10 are borrowing USDC against wstETH collateral.

Untitled - 2024-06-28T103945.339

Borrow Distribution

Borrows of wstETH are small and relatively concentrated in one user, borrowing $263K against $332K WETH; this position is at limited risk of liquidation.

Untitled - 2024-06-28T103947.457

Recommendation

Given user behavior and supply and borrow distribution, we recommend increasing the supply cap — noting that we are limited by on-chain supply — and doubling the borrow cap.

Specification

Chain Asset Current Supply Cap Recommended Supply Cap Current Borrow Cap Recommended Borrow Cap
Scroll USDC 15,000,000 30,000,000 13,000,000 26,000,000
Scroll WETH 9,000 18,000 7,200 14,400
Scroll wstETH 8,000 12,000 180 360

Next Steps

We will move forward and implement these updates via the Risk Steward process.
For transparency, the transaction for this proposal will be executed on June 28 at 11 am GMT.

Disclaimer

Chaos Labs has not been compensated by any third party for publishing this ARFC.

Copyright

Copyright and related rights waived via CC0

2 Likes

Thank you for the fast reaction and creation of the ARFC.
Its nice to see that Scroll is growing so fast.
Recommendations might seem big but now that Aave is highlighted for Marks it makes sense to be more aggressive.

1 Like

The tx for this proposal has now been executed.