A proposal to increase the weETH supply cap on Aave V3’s Ethereum deployment.
Motivation
WeETH reached its supply cap minutes after being onboarded to Aave V3 Ethereum. This is due to a single wallet who deposited 8K weETH and borrowed 7.7K WETH against his collateral in E-mode.
What are the considerations here for what is a safe supply cap here? Are we basically hoping this one borrower is not going to do anything stupid?
It’s not clear to me that even 8k is a reasonable supply cap for weETH as is:
weETH holds one of the highest levels of available exit liquidity among all LRTs, but the liquidity in these emerging markets has shown notable volatility. The original assumption in the onboarding post was that if liquidity levels remain stable, 8k weETH could be liquidated. However, given the fluctuating nature of liquidity, it’s useful to delve into a breakdown of LPs across the Balancer pools. Considering the potential for substantial shifts in incentives (regarding points and airdrops), we may witness rapid changes in the composition of these liquidity pools.
With the utilization of the asset in e-mode and the pricing of eETH as ETH in the underlying weETH oracle, weETH:ETH volatility is mitigated, and sufficient interest must accrue to incur liquidations. Consequently, given the primary usage anticipated (and observed) of using weETH collateral to borrow WETH, liquidity assumptions need not be held to the same standard.
Furthermore, weETH liquidity is significantly deeper when inputting on alternative aggregators, as they support various additional sources of atomic liquidity.
There is a 5-day timelock between risk steward transactions, meaning the earliest increase can be executed on Friday, April 19th.
We will analyze and provide further recommendations in the coming days.
Like Chaos said, there is a 5 day timelock. So you would need another 2 days.
Aave is not having limits per wallet/user. Its a fcfs principle here. And if it gets filled again and there is still enough liquidity and Chaos approves (risk side), they will raise it again.
The DAO is simply taking security into every decision into account thats why we don’t open it basically uncapped.