[ARFC] MaticX Supply Cap Increase in Polygon V3

The user at address 0x1e5b92c66e4cad7963e8dacf1e8d642304c172c8 supplies $20.32M in MaticX and $10.72M in stMatic, borrowing $7.17M in USDC.e and $0.72M in USDT. Our LST supply cap methodology recommends a cap at 50% of LST’s total supply, assuming its predominant use in eMode. For non-LST assets, we recommend a supply cap that allows for 25% slippage on DEXs. Currently, the $20.32M MaticX supply causes 85% slippage on DEXs. This user is well-collateralized with a Health Factor of 2.4, although positions may change; thus, we avoid over-relying on specific user positions under stable market conditions.

Raising the supply cap from 62M to 75M would enable an additional $11.2M in MaticX supply. If a user supplies this amount and borrows up to 92.50% LTV, equivalent to $10.36M in wMATIC, with the average wMATIC Borrow APY at 2.75% and a reserve factor of 20%, this would generate approximately $57k in annual wMATIC reserve growth for the protocol.

Despite the potential from both recursive and non-recursive MaticX suppliers, our methodology advises against raising the cap. Instead, increasing the wMATIC Reserve Factor would be a lower risk avenue to increase wMATIC reserve growth, given wMATIC suppliers are likely inelastic to a slight decrease in their 1.3% supply APY, and rather care more about their borrowing power.

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