Summary
A proposal to increase the supply cap for WETH on Aave V3’s Arbitrum deployment
Motivation
WETH
Following a surge in new deposits, WETH has reached 93% supply and borrow cap utilization.
Supply Distribution
The largest supplier has deposited 25% of the total WETH in this market and is borrowing $57M USDC against their collateral.
This supplier is a dHedge strategy, which has seen rapid growth in TVL following its launch on Arbitrum.
It aims to achieve 3x leverage on ETH using leverage on Aave and has been consistently rebalancing its position to reach the desired leverage.
Borrow Distribution
The largest borrower is borrowing $52M WETH against wstETH collateral in a looping strategy, putting this position at relatively low risk of liquidation.
Recommendation
Given on-chain liquidity and user distribution, we recommend increasing the supply cap to 120K. Given high utilization and corresponsing borrow rates we recommend no increase to the borrow cap and will recommend additional increases at a later stage.
Specification
| Chain | Asset | Current Supply Cap | Recommended Supply Cap | Current Borrow Cap | Recommended Borrow Cap |
|---|---|---|---|---|---|
| Arbitrum | WETH | 100,000 | 120,000 | 90,000 | 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
