Summary
A proposal to:
- Increase rsETH’s supply cap on Aave’s V3 Ethereum main instance.
- Increase sUSDe’s supply cap on Aave’s V3 Ethereum main instance.
- Increase ETHx’s supply cap on Aave’s V3 Ethereum main instance.
rsETH (Ethereum-Main)
rsETH has reached 100% supply cap utilization while its borrow cap utilization remains at 0% on the Ethereum Main instance. The previous supply cap increase has been filled quickly, showing strong demand for rsETH.
Supply Distribution
The supply distribution of rsETH is highly concentrated within the top 2 addresses, representing 65% and 51.5% of the market, respectively. The biggest address represents the CIAN rsETH/ETHx leverage vault, which employs a looping strategy with wstETH as a borrowed asset. The second address utilizes an identical looping strategy. It is worth noting that as CIAN vaults is managed as a single position, it is represented by numerous suppliers. Hence, it does not present significant concentration risk. Given the strong correlation between collateral and borrowed assets, the biggest market positions do not present any liquidation risk.
Moreover, wstETH represents $249M or 99.6% of the value borrowed against rsETH. This currently shows minimal demand for rsETH as collateral for stablecoins or volatile assets.
Liquidity
While the DEX liquidity for rsETH has reduced to 5,000 rsETH within a 1% price impact, the major positions in the market are actively managed and maintain a safe health score, hence this does not pose a risk to the protocol.
Recommendation
Given user behavior and on-chain liquidity, we recommend increasing the supply cap to 152,000 rsETH. This increase is backed by Chaos Labs’ risk simulations, which consider user behavior, on-chain liquidity, and price impact, ensuring that the higher cap does not introduce additional risk to the platform.
sUSDe (Ethereum-Main)
sUSDe has reached 100% of its supply cap utilization. The previous supply cap increase has been filled quickly, showing strong demand for sUSDe.
Supply Distribution
The supply distribution of sUSDe is fairly balanced, with the top position representing $36M or 25% of the market supply. All the top positions utilize sUSDe as collateral to borrow stablecoins such as USDS, USDT, and USDC. Thanks to the high correlation between the supplied and borrowed assets, none of the top positions poses a liquidation risk.
USDS shows the strongest demand among the borrowed assets against sUSDe representing 65% of the value borrowed. This is in large part thanks to the strong available SUSDS borrow liquidity that allows it to maintain a more stable borrow rate.
Liquidity
sUSDe’s DEX liquidity paired with USDC has been growing significantly over the last month, reaching a current value of $26M within a 1% price impact. This ensures that the market positions can be liquidated profitably and efficiently.
Recommendation
Given user behavior and on-chain liquidity, we recommend increasing the supply cap to 256,000,000 sUSDe. This increase is backed by Chaos Labs’ risk simulations, which consider user behavior, on-chain liquidity, and price impact, ensuring that the higher cap does not introduce additional risk to the platform.
ETHx (Ethereum-Main)
Following a surge in demand, ETHx has reached 90% of its supply cap utilization. Its borrow cap utilization remains at 0%. The majority of the supply increase is caused by a single deposit of 3140 ETHx.
Supply Distribution
The supply distribution of ETHx is highly concentrated within the top 2 addresses, representing 55% and 21% of the market, respectively. The biggest address employs a looping strategy with WETH as a borrowed asset, while the second address maintains a very healthy borrow position of GHO and WBTC. Given the strong correlation between collateral and borrowed assets or safe health scores, the biggest market positions do not present any liquidation risk.
WETH represents the majority of the borrowing demand against ETHx collateral, currently making up for over 84% of the value borrowed against the asset. Stablecoins such as GHO and USDT represent an additional 12% of the borrowed value.
Liquidity
While rsETH’s DEX liquidity has reduced to 2,200 ETHx within a 1% price impact, the major position in the market is actively managed and maintains a safe health score. Hence, this does not pose a risk to the protocol.
Recommendation
Given user behavior and on-chain liquidity, we recommend increasing the supply cap to 20,000 ETHx. This increase is backed by Chaos Labs’ risk simulations, which consider user behavior, on-chain liquidity, and price impact, ensuring that the higher cap does not introduce additional risk to the platform.
Specification
| Chain | Instance | Asset | Current Supply Cap | Recommended Supply Cap | Current Borrow Cap | Recommended Borrow Cap |
|---|---|---|---|---|---|---|
| Ethereum | Main | rsETH | 76,000 | 152,000 | 1,900 | - |
| Ethereum | Main | sUSDe | 128,000,000 | 256,000,000 | - | - |
| Ethereum | Main | ETHx | 10,000 | 20,000 | 5,000 | - |
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
