Summary
A proposal to:
- Increase ezETH’s supply cap on Aave’s V3 Ethereum Lido instance.
- Increase wstETH’s borrow cap on Aave’s V3 Ethereum Lido instance.
ezETH (Ethereum Lido)
ezETH has reached 100% supply cap utilization on Ethereum Lido instance.
The vast majority of the previous cap increase was taken up by a single user (0xd6) depositing 23.55K ezETH and 6.43K ezETH and borrowing 20.43K wstETH in a single transaction shortly after it was raised.
Supply Distribution
Notably, this was a different user than the one which filled the caps after the previous increase; this user (0x4a) has not adjusted their position since October 28.
As of our last cap increase recommendation, 0xd6 was the third largest ezETH supplier; they are now the largest, representing 58% of supply. 0x4a now represents 26.5% of the token’s supply.
0xd6 is an address associated with the DeFi protocol CIAN, which offers both an ezETH Yield Layer strategy and stETH Yield Layer strategy, both utilizing ezETH “recursive staking” on Aave. The stETH strategy is 94% utilized, with 70.61% of its funds allocated to ezETH recursive staking, while the ezETH strategy is 100% utilized, with 52.6% of its funds allocated to ezETH recursive staking, while the other 43% (about 235 ezETH) is being held idly and will likely be deployed on Aave when caps are raised. Given the emergence of DeFi strategies leveraging the new ezETH/wstETH E-Mode, it is likely that cap increases will be filled quickly.
The current distribution of the market presents limited risk as both assets utilize exchange rates relative to ETH/USD. While some deviation between exchange rates may occur, it is unlikely to be large enough to cause large liquidations.
Recommendation
Given high demand, user behavior, and the low risk of liquidations, we recommend doubling the supply cap to 112,000 ezETH. This increase is backed by Chaos Labs’ risk simulations, which account for user behavior, on-chain liquidity, and price impact, ensuring that the higher cap does not introduce additional risk to the platform.
wstETH (Ethereum Lido)
On the other side of this new E-Mode, wstETH’s borrow cap has reached 76% utilization. With just 25.2% market utilization, there is a large buffer of available supply to meet the added expected borrowing demand.
Additionally, wstETH deposited in the Lido instance has begun to generate meaningful supply yield, making it a more appealing venue for deposits and likely increasing supply over the long term.
Recommendation
We recommend doubling wstETH’s borrow cap to 112,000. This increase is again backed by Chaos Labs’ risk simulations, ensuring that the raised borrow cap does not introduce additional risk to the platform.
Specification
| Chain | Asset | Current Supply Cap | Recommended Supply Cap | Current Borrow Cap | Recommended Borrow Cap |
|---|---|---|---|---|---|
| Ethereum Lido | ezETH | 60,000 | 120,000 | - | - |
| Ethereum Lido | wstETH | 650,000 | - | 56,000 | 112,000 |
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