Summary
A proposal to increase the WETH supply cap on Aave V3’s Metis deployment.
Motivation
WETH has reached its supply cap on Metis following significant growth in deposits.
Supply Distribution
Following the weekend’s volatility, the top supplier has deposited $2.27M WETH and borrowed $1.4M USDC against it, for a health score of 1.28.
This position is at risk of liquidation should ETH’s price fall. However, collateral at risk does not increase significantly until ETH drops to $2,400.
Borrow Distribution
WETH borrows on Metis (excluding the aforementioned WETH-WETH position) are relatively limited because the Metis market does not contain any LSTs, which drive demand for WETH borrowing from looping strategies.
Recommendations
As per our methodology, we recommend limiting the supply caps to 50% of the on-chain circulating supply of a given token. Currently, there are 3,627 WETH on Metis; based on the on-chain liquidity and user behavior, we recommend increasing the supply cap to 1,800 WETH, while not adjusting the borrow cap.
| Chain | Asset | Current Supply Cap | Recommended Supply Cap | Current Borrow Cap | Recommended Borrow Cap |
|---|---|---|---|---|---|
| Metis | WETH | 1,400 | 1,800 | 720 | No Change |