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%.
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.
Overall, USDC represents 49.38% of the value borrowed against WETH.
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.
Borrow Distribution
The biggest wstETH borrowers provide WETH as collateral, which is highly correlated to wstETH and provides a low liquidation risk.
Overall, WETH represents 97.85% of the collateral used to borrow wstETH.
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.
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.
Overall, WETH represents 99.06% of the assets borrowed with weETH.
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.
Overall, WETH represents 66.41% of the collateral used to borrow weETH.
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