[ARFC] Increase Caps for Aave V3 GnosisChain Market

title: [ARFC] Increase Caps for Aave V3 GnosisChain Market
author: @marczeller - Aave Chan Initiative
created: 2023-11-10


This ARFC proposes to increase the caps for various assets in the Aave V3 GnosisChain market.


The recent GnosisChain market launch has attracted nearly $20M in liquidity in a few days. This ARFC aims to raise caps for this deployment to support its growth and meet demand.


Proposed Supply Cap Adjustments

Asset Current Supply Cap Suggested Supply Cap Current Borrow Cap Suggested Borrow Cap
wstETH 4,000 8,000 - -
WETH 4,000 6,000 3,500 5,000
GNO 30,000 40,000 - -
sDAI 1.5M 30M - -
wxDAI 1.5M 30M 1.5M 25M
USDC 1M 10M 1M 9M
EURe 500k 5M 500k 4.5M

Next Steps

  1. Community feedback.
  2. Proceed to ARFC snapshot stage.
  3. Escalate to AIP stage if successful.


This proposal is powered by Skyward. The Aave Chan Initiative (ACI) is not compensated by any entities for creating this ARFC proposal.


Copyright and related rights waived via CC0.


Thanks @MarcZeller for putting forward this proposal.
Chaos Labs will provide recommendations on this proposal in the coming days. In the meantime, we put forward a Risk Steward proposal for an immediate increase of several of the assets proposed above.

We’re supportive of this increase

Thanks @MarcZeller for this post. As we have stated previously and in our original risk recommendations for v3 Gnosis, Gnosis liquidity between stables and non-stables is limited. Managing borrow and supply caps ultimately involves balancing recursive LST strategies and recursive SDAI strategies with native demand for WETH/WSTETH collateralized stablecoin borrowing and vice versa. As such, Gauntlet recommends increasing caps conservatively in line with cap usage, in order to align with liquidity and borrow usage changes.

The previous risk steward raised wstETH, SDAI, WXDAI, USDC, and EURe caps. Should the community wish to raise caps despite lower current usage, Gauntlet provides the following parameters. These parameters are intended to be considerate of stablecoin borrows becoming increasingly collateralized by WSTETH/WETH/GNO. See the below appendix for more details.

Asset Current Supply Cap Usage Current Supply Cap Recommended Supply Cap Current Borrow Cap Usage Current Borrow Cap Recommended Borrow Cap
WSTETH 68% 5,000 6,000 0 400 400
WETH 53% 4,000 5,000 34% 3,500 4,500
GNO 52% 30,000 - -
SDAI 67% 3M 6M - -
WXDAI 47% 2.3M 3.5M 42% 2.3M 3.5M
USDC 34% 1.5M 2M 23% 1.5M 2M
EURe 33% 750k 1M 26% 750k 1M

Increasing supply caps for stablecoins disproportionately may result in excess WETH borrowing against stables in light of current liquidity. As v3 Gnosis matures, WETH borrowing against stables may increase. For instance, v3 Arbitrum, Optimism, Polygon USDC show ~15% of nonstable debt as a percentage of USDC supplied.


The v3 Gnosis loanbook shows significantly more correlated (i.e. stable ↔ stable, or WSTETH ↔ WETH) positions as compared to other v3 deployments on sidechains. Caps should be considerate of v3 Gnosis maturing and increased amount of stable debt collateralized by WSTETH/WETH/GNO, as well as non-stable debt collateralized by stablecoins.

Current stable debt is ~75% collateralized by SDAI and other stables. We target global stablecoin borrow caps such that should this ratio drop to 50%, repayment of liquidated non-stable collateral during liquidation incurs ~25% slippage.

As of 2023-11-20, a ~1200 WSTETH (~$2.8m) swap incurs ~25% slippage.

Current loanbook

  • Analysis of current loanbook reveals one large account supplying ~60% of WSTETH and the large majority of all other assets, excluding SDAI. This account also bootstraps ~90% of the liquidity between WSTETH and stablecoins.
  • Borrow distribution against stables shows small borrow against USDC and xDAI, and ~$1.1m stables against SDAI
  • Borrow distribution against WSTETH shows ~$2.7m borrowed against, 90% in emode, against WETH shows ~$90k in stables

On a borrow-asset level,

  • $950k WXDAI borrows are ~90% collateralized by SDAI, ~10% by WSTETH/WETH
  • $350k USDC borrows are ~50% collateralized by SDAI, ~50% by WSTETH/WETH
  • $200k EURe borrows are ~60% collateralized by stables, ~40% by WSTETH/WETH

As such, currently the majority of users are engaged in recursive WSTETH or recursive SDAI strategies. These are naturally sensitive to WSTETH yields, DSR, and stablecoin borrowing rates. Ultimately, borrow usage and behavior may evolve in the future on v3 Gnosis as demand for WETH leverage increases.

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