[ARFC] Chaos Labs Risk Stewards - Increase Supply Caps on Scroll V3

Summary

A proposal to:

  • Increase WETH’s supply cap on Aave V3 Scroll deployment.
  • Increase wstETH’s borrow caps on Aave V3 Scroll deployment.
  • Increase weETH’s supply and borrow caps on Aave V3 Scroll deployment.

Motivation

WETH (Scroll)

WETH on Scroll has reached 82% supply cap and 80% borrow cap. The utilization rate has dropped to 74.69%.

image - 2024-09-10T224638.314

image - 2024-09-10T224643.692

Supply Distribution

The biggest WETH borrowers are borrowing USDC. Most of the top suppliers instead borrow a mix of wstETH and weETH, which are highly correlated to WETH and provide a low liquidation risk. The biggest WETH supplier represents a significant portion of the market.

image - 2024-09-10T224646.685

Overall, USDC represents 49.38% of the value borrowed against WETH.

image - 2024-09-10T224649.801

Recommendation

Given the on-chain liquidity, users’ behavior, and the borrowed assets’ correlation, we recommend increasing the supply cap to 70,000 WETH.

wstETH (Scroll)

wstETH on Scroll has reached 100% supply cap and 100% borrow cap.

image - 2024-09-10T223856.968

image - 2024-09-10T223859.323

Borrow Distribution

The biggest wstETH borrowers provide WETH as collateral, which is highly correlated to wstETH and provides a low liquidation risk.

image - 2024-09-10T223901.497

Overall, WETH represents 97.85% of the collateral used to borrow wstETH.

image - 2024-09-10T223906.578

Recommendation

Given the users’ behavior, the correlation of the collateral used, and the limited on-chain liquidity, we recommend increasing only the borrow cap to 8,400 wstETH.

weETH (Scroll)

weETH on Scroll has reached 100% supply cap and 100% borrow cap.

image - 2024-09-10T224032.118

image - 2024-09-10T224034.384

Supply Distribution

The biggest weETH suppliers are borrowing WETH. The two biggest borrowers represent a significant portion of the market. Given the high correlation between weETH and WETH, these positions have a low risk of liquidation.

image - 2024-09-10T224036.790

Overall, WETH represents 99.06% of the assets borrowed with weETH.

image - 2024-09-10T224039.176

Borrow Distribution

The biggest weETH borrowers are using WETH and wstETH as collateral. The three biggest weETH borrowers represent the majority of the market, and their positions have a low liquidation risk, given the high correlation between the borrows and the collateral.

image - 2024-09-10T224042.527

Overall, WETH represents 66.41% of the collateral used to borrow weETH.

image - 2024-09-10T224045.487

Recommendation

Given the growth in on-chain liquidity, users’ behavior, and the correlation of the collateral used, we recommend increasing the supply cap to 24,000 weETH and the borrow cap to 3,200 weETH.

Specification

Chain Asset Current Supply Cap Recommended Supply Cap Current Borrow Cap Recommended Borrow Cap
Scroll WETH 65,000 70,000 50,000 -
Scroll wstETH 22,000 - 4,200 8,400
Scroll weETH 16,000 24,000 1,600 3,200

Next Steps

We will move forward and implement these updates via the Risk Steward process.
For transparency, we aim to execute the risk steward transaction on September 11th at 3:30 PM GMT

Disclaimer

Chaos Labs has not been compensated by any third party for publishing this ARFC.

Copyright

Copyright and related rights waived via CC0

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