Overview
Chaos Labs supports listing USDC and FRAX on Aave V3’s Lido Instance. Below are our analyses and initial risk parameter recommendations.
LTV, Liquidation Threshold, and Liquidation Bonus
We recommend disabling these assets as collateral given their limited use cases in this instance. Additionally, if incentives are enabled, these assets could be used to loop with themselves, increasing costs for organic borrows.
Supply and Borrow Caps
Following Chaos Labs’ approach to initial supply caps, we generally propose setting the Supply Cap at 2x the liquidity available under the Liquidity Bonus price impact.
However, in this situation, we prefer to set the caps more conservatively to first assess demand for supplying and borrowing these assets, given that the original purpose of this instance was to facilitate wstETH-WETH leveraged yield farming. Additionally, while $327M USDC was borrowed against wstETH on the main Ethereum instance, observations from the uptake of the Lido instance indicate that migration will be an extended process, allowing us to facilitate cap increases.
The amount of wstETH supplied in the Lido instance is currently 1/10 of that in the main instance, indicating that we are unlikely to see more than 32M in USDC borrow demand at current wstETH supply levels.
$179K of FRAX is being borrowed against wstETH in Ethereum-Main, though there may be more demand in this instance because USDT — the second most borrowed stablecoin against wstETH — is not listed.
Thus, we recommend setting their respective supply caps at 2x the liquidity available below 1% price slippage for a swap to wstETH, with borrow caps set according to UOptimal.
Interest Rate Curve
We recommend aligning the IR curves with the settings on Ethereum-Main.
Recommendations
Following the above analysis, we recommend the following parameters for USDC and FRAX in the Lido instance.
| Parameter | USDC | FRAX |
|---|---|---|
| Chain-Instance | Ethereum-Lido | Ethereum-Lido |
| Isolation Mode | No | No |
| Borrowable | Yes | Yes |
| Collateral Enabled | No | No |
| Supply Cap | 30,000,000 | 20,000,000 |
| Borrow Cap | 27,600,000 | 18,000,000 |
| Debt Ceiling | - | - |
| LTV | - | - |
| LT | - | - |
| Liquidation Bonus | - | - |
| Liquidation Protocol Fee | - | - |
| Variable Base | 0% | 0% |
| Variable Slope1 | 5.5% | 5.5% |
| Variable Slope2 | 60% | 75% |
| Uoptimal | 92% | 90% |
| Reserve Factor | 10% | 20% |
| Stable Borrowing | Disabled | Disabled |
| Flashloanable | Yes | Yes |
| Siloed Borrowing | Disabled | Disabled |
| Borrowable in Isolation | No | No |
| E-Mode Category | - | - |