[ARFC] Chaos Labs Risk Stewards - Increase Supply Caps on Aave V3 BNB and Scroll - 05.29.2024

Summary

A proposal to increase the supply caps on the following markets:

  • wstETH on Scroll
  • BTCB on BNB Chain

Motivation

wstETH (Scroll)

wstETH on Scroll has reached full supply cap utilization while borrows remain relatively limited.

Untitled - 2024-05-29T145652.725

Untitled - 2024-05-29T145654.394

Supply Distribution

The largest supplier is responsible for 34% of the total market and is not borrowing against their deposit.

Untitled - 2024-05-29T145708.168

Two top ten suppliers are borrowing USDC against wstETH, putting these positions at higher risk of liquidation. However, we find that they could be liquidated under the Liquidation Bonus price impact at current liquidity levels.

Recommendation

Given on-chain liquidity and user behavior, we recommend increasing the supply cap to 2,000 wstETH; no adjustment to the borrow cap is necessary.

BTCB (BNB Chain)

BTCB’s supply and borrow caps are 88% and 2% utilized, respectively, following a steady increase in deposits.

Untitled - 2024-05-29T145719.974

Supply Distribution

The market is very distributed, with the largest supplier accounting for just 5.3% of the total deposits.

Untitled - 2024-05-29T145721.622

The top suppliers are primarily borrowing FDUSD, ETH, USDT, and WBNB against their BTCB collateral, putting these positions at risk of liquidation should BTC’s price fall and/or ETH or BNB’s increase. Overall, USDT is the most popular asset borrowed against BTCB.

Untitled - 2024-05-29T145723.175

Recommendation

Given on-chain liquidity and user distribution, we recommend increasing the supply cap by 50% while leaving the borrow cap unchanged.

Specification

Chain Asset Current Supply Cap Recommended Supply Cap Current Borrow Cap Recommended Borrow Cap
Scroll wstETH 1,300 2,000 90 No Change
BNB Chain BTCB 400 600 180 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

The transactions for this proposal have now been executed.