[ARFC] - Chaos Labs Risk Stewards - Increase Supply Caps on V3 Ethereum, Arbitrum and Optimism - 12.26.2023

[ChaosLabs]

Summary

A proposal to increase:

Ethereum

• CRV - supply cap
• rETH - supply cap

Arbitrum

• rETH - supply cap

Optimism

• LINK - supply cap

Motivation

The recommendations below were made utilizing Chaos’ supply and borrow cap methodologies and after analyzing user positions for each asset.

Please note that there are several other assets across V3 deployments with high supply and borrow cap utilization that were analyzed and do not have recommendations for an increase, given current market conditions. We maintain continuous monitoring of protocol usage and adjust our recommendations in response to evolving market conditions based on our simulations.

Ethereum

rETH

The supply cap for rETH on Ethereum V3 is currently at 92% utilization.

Utilizing our supply and borrow cap methodology, we do not observe excess risk when increasing the supply cap for rETH on Ethereum. We recommend increasing the supply cap to 90K rETH.

We want to highlight that, in contrast to wstETH, which is predominantly used for borrowing WETH, the majority of rETH is utilized as collateral for borrowing stablecoins, accounting for 66% of total borrows.

CRV

The supply cap for CRV on Ethereum V3 is currently at 100% utilization.

The recent increase in CRV supply is due to a single user (Michael Egorov) supplying ~5.36M CRV, amounting to over 71% of the total CRV supply. The user is currently borrowing nearly 707K USDC against his CRV collateral.

Utilizing our supply cap methodology and given the debt ceiling set at $1m, we do not observe excess risk when increasing the supply cap for CRV on Ethereum. However, given the current concentration in a single user, we recommend a modest increase of the supply cap to 11M CRV.

Arbitrum

rETH

The supply cap for rETH on Arbitrum V3 is currently at 82% utilization.

Utilizing our supply cap methodology, we do not observe excess risk when increasing the supply cap for rETH on Arbitrum. Given the current supply, we recommend a 50% increase to the supply cap to 5,100 rETH.

Optimism

LINK

The supply cap for LINK on Optimism V3 is currently at nearly 100% utilization.

Our methodology recommends capping the supply at 50% of the total circulating on-chain supply. With the circulating supply on Arbitrum at ~471K LINK, we recommend increasing the supply cap to 235,000. Utilizing our supply cap methodology, we do not observe excess risk with this increase.

Specification

Chain	Asset	Current Supply Cap	Recommended Supply Cap	Current Borrow Cap	Recommended Borrow Cap
Ethereum	rETH	60,000	90,000	19,200	No Change
Ethereum	CRV	7,500,000	11,000,000	5,000,000	No Change
Optimism	LINK	210,000	235,000	84,000	No Change
Arbitrum	rETH	3,400	5,100	1,400	No Change

Next Steps

Once we receive feedback from @Gauntlet on the above recommendations, we will move forward to 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

[Gauntlet]

Response to Chaos Recommendations

Per Gauntlet’s supply and borrow cap methodology, we support the recommended cap increases. Gauntlet supports a higher cap increase of 100k for rETH on Ethereum.

Asset	Chain ID	Current Supply Cap	New Supply Cap	Current Borrow Cap	New Borrow Cap
rETH	Ethereum	60,000	100,000	19,200	No Change
rETH	Arbitrum	3,400	5,100	1360	No Change
LINK	Optimism	210,000	235,000	84,000	No Change
CRV	Ethereum	7,500,000	10,000,000	5,000,000	No Change

Based on the communities’ preference for aggressive caps for LINK. Gauntlet supports the recommendation of 235k based on across chain liquidity. 25% DEX slippage for LINK on OP chain is currenlty at 43k.

Gauntlet recommends increasing the supply cap to 100k based on user positions and on-chain liquidity. rETH’s collateral usage on the Ethereum v3 market is near $43M with most of the large debt positions not borrowing WETH. As such, Gauntlet will continue to monitor rETH positions post cap increase.

_{Link to dashboard}

With CRV having a debt ceiling of $1M, Gauntlet supports the increase of supply cap to 10M based on the limited exposure of CRV as collateral and overall ample cross chain liquidity for CRV.

[ChaosLabs]

We’ve prepared the payload to be executed via the Risk Steward process for this proposal.

• Ethereum
• Optimism
• Arbitrum

We have updated the supply caps to be the min between the recommendations made by Gauntlet and Chaos:

Chain	Asset	Current Supply Cap	Recommended Supply Cap	Current Borrow Cap	Recommended Borrow Cap
Ethereum	rETH	60,000	90,000	19,200	No Change
Ethereum	CRV	7,500,000	10,000,000	5,000,000	No Change
Optimism	LINK	210,000	235,000	84,000	No Change
Arbitrum	rETH	3,400	5,100	1,400	No Change

[Gauntlet]

This has been executed via risk steward.