Summary
A proposal to:
- Increase AAVE’s supply cap on Aave’s V3 Arbitrum main instance.
- Increase ARB’s supply cap on Aave’s V3 Arbitrum main instance.
AAVE (Arbitrum)
AAVE has reached 100% supply cap utilization on Arbitrum.
Supply Distribution
The top AAVE supply positions mantain a highly varied combination of collaterals and the main assets borrowed against them are stablecoins such as USDC and USDT. While the top AAVE supplier represents a significant portion of the market, its health score is very high at 1.98. The other top positions mantain similarly high health scores and no position is at risk of liquidation.
Overall, stablecoins such as USDC, USDT and GHO represent 85.6% of the value borrowed against AAVE.
Recommendation
Given the high health scores and varied combination of collaterals employed in the top positions, but the limited supply of the AAVE token on Arbitrum, we recommend increasing the supply cap to 18,000 AAVE. This increase is backed by Chaos Labs’ risk simulations, which consider the user’s behavior, on-chain liquidity, and price impact, ensuring that the higher cap does not introduce additional risk to the platform.
ARB (Arbitrum)
ARB has reached 96% supply cap utilization on Arbitrum, and its borrow cap is at 32% capacity.
Supply Distribution
Most of the top ARB suppliers use it as collateral to borrow stablecoins such as USDC and USDT, except for the top position that uses it to borrow WETH. None of the top positions is disproportionate to the rest of the market, and none of the top positions maintains a health score under 1.2. Hence no liquidation risk is posed by the top ARB suppliers.
Overall, stablecoins represent 78% and WETH 26% of the value borrowed against ARB.
Recommendation
Given the safe user’s behavior and varied collateral combination, we recommend increasing the supply cap to 120,000,000 ARB. This increase is backed by Chaos Labs’ risk simulations, which consider the user’s behavior, on-chain liquidity, and price impact, ensuring that the higher cap does not introduce additional risk to the platform.
Specification
| Chain | Asset | Current Supply Cap | Recommended Supply Cap | Current Borrow Cap | Recommended Borrow Cap |
|---|---|---|---|---|---|
| Arbitrum | AAVE | 14,000 | 18,000 | - | - |
| Arbitrum | ARB | 60,000,000 | 120,000,000 | 16,500,000 | - |
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