Summary
A proposal to:
- Increase wstETH’s supply cap on Aave’s V3 Polygon deployment.
- Increase GHO’s supply cap on Aave’s V3 Arbitrum deployment.
- Increase LINK’s supply cap on Aave’s V3 Arbitrum deployment.
wstETH (Polygon)
wstETH has reached 100% supply cap utilization on Polygon, and its borrow cap is at 4% capacity.
Supply Distribution
Most of the top wstETH suppliers borrow WETH. The two biggest wallets represent an outsized portion of the total supply. Given the high correlation between the borrowed assets and the collateral, the top wallets pose little liquidation risk.
Overall, WETH represents 93.66% of the value borrowed against wstETH.
Recommendation
We recommend increasing the supply cap to 11,500 wstETH; we do not recommend a larger increase because of limited available WETH borrow liquidity.
GHO (Arbitrum)
GHO has reached 95.7% supply cap utilization on Arbitrum, and its borrow cap is at 95.51% capacity.
Supply Distribution
While GHO cannot be used as collateral, most top GHO suppliers are redepositing after borrowing from the same pool, effectively farming the pool’s ARB incentives. The biggest wallet represents an outsized portion of the total supply. No position poses a liquidation risk.
Borrow Distribution
Most of the top GHO borrowers are using USDC or WBTC as collateral. The largest wallet represents an outsized portion of the total borrow demand but poses little liquidation risk given the high asset correlation and the safe health score. The other top wallets maintain mixed health scores but use highly liquid collaterals, minimizing the liquidation risk.
Overall, USDC represents 46% of the collateral used to borrow GHO.
Recommendation
Given user behavior and on-chain liquidity, we recommend increasing the supply cap to 20,000,000 GHO and the borrow cap to 18,000,000 GHO.
LINK (Arbitrum)
LINK has reached 95% supply cap utilization on Arbitrum, and its borrow cap is at 9% capacity.
Supply Distribution
Most of the top LINK suppliers use their holdings as collateral to borrow USDC or USDC.e. The largest LINK supplier holds a significant share of the total supply. Despite LINK’s volatility, the majority of top positions maintain strong health scores, posing minimal risk of liquidation.
Overall, stablecoins represent 62% of the value borrowed against LINK.
Recommendation
Our simulations indicate that we can safely recommend increasing the supply cap to 3,200,000 LINK.
Specification
| Chain | Asset | Current Supply Cap | Recommended Supply Cap | Current Borrow Cap | Recommended Borrow Cap |
|---|---|---|---|---|---|
| Polygon | wstETH | 10,500 | 11,500 | 570 | - |
| Arbitrum | GHO | 16,000,000 | 20,000,000 | 14,000,000 | 18,000,000 |
| Arbitrum | LINK | 2,000,000 | 3,200,000 | 484,490 | - |
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