[ARFC] Chaos Labs Risk Stewards - Increase Supply Cap for weETH on V3 Ethereum - 04.14.2024

Summary

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.

Recommendations

Utilizing our supply cap methodology and considering current borrow distribution against weETH, we recommend doubling the supply cap to 16K weETH

Specification

Chain Asset Current Supply Cap Recommended Supply Cap Current Borrow Cap Recommended Borrow Cap
Ethereum weETH 8,000 16,000 800 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

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:
image

Maybe some of our risk provider contenders can quickly sanity check this as well?
@Alex_BertoG @paulsengh @LlamaRisk

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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.

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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.
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2 Likes

The transaction for this proposal has now been executed.

Caps have been filled yet again within minutes. any plans to further increase caps?

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.

Thanks for the update here @ChaosLabs
What are the additional atomic sources of liquidity not considered by 1inch?

Don’t know which they are but you can check with DefiLlama swap. They are basically an aggregator for aggregator.

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Hey. Any new updated on this? Perhaps this time we can introduce a cap per wallet so not everything gets taken by a single whale?

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.

Hi! Just following up, as today is the 19th. Are we raising caps again?