Gauntlet Recommendations
Per our Methodology, Gauntlet would recommend the following changes to the caps:
- Increase wETH Supply Cap from 35,280 to 45,000.
- Increase wBTC Supply Cap from 2,100 to 2,775.
As previously mentioned, we do not recommend increasing the supply cap for wstETH and recommend a more conservative borrow cap increase at this time due to the impending Shanghai Upgrade. Similarly, we do not recommend increasing the borrow cap for wETH and recommend a more conservative supply cap increase. We recommend revisiting these caps immediately post-upgrade on April 12th.
Note that wstETH and wETH are in the Ethereum-correlated eMode pool on Arbitrum, where the current LTV is 90% and LT is 93%. Following our analysis on raising supply caps for cbETH on the Ethereum Aave v3 protocol, we want to highlight potential risks in a large increase in wstETH supply cap or wETH borrow cap, especially preceding the upgrade.
To recap, users may aggressively pursue the wstETH-wETH trade in order to capitalize on staking rewards before the Shanghai upgrade, after which they are expected to decrease. However, on-chain liquidity on Arbitrum may not be able to support large liquidations for these whale accounts. Moreover, our analysis indicates that after considering global liquidity across DEX and CEX, the most aggressive supply cap that would be able to support healthy liquidations as well as safeguard against long-attacks is 7,250.
Furthermore, we recommend postponing raising the supply cap for wstETH on Optimism until April 12 – although the risk on Optimism is lower than on Arbitrum without an Ethereum-correlated eMode pool, we recommend revisiting caps for all Ethereum-derived assets post-upgrade.
Specification
Gauntlet Recs
Arbitrum Cap Recommendations
| Asset | Cap | Current Cap | Conservative Cap Rec | Aggressive Cap Rec |
|---|---|---|---|---|
| wstETH | Supply | 4,650 | 2,800 | 7,250 |
| wETH | Supply | 35,280 | 45,000 | 168,310 |
| wETH | Borrow | 11,165 | 14,528 | 20,901 |
| wBTC | Supply | 2,100 | 420 | 2,775 |
Appendix
For reference, below are Chaos’s recs so that the community may compare the differences:
