[ARFC] Polygon Supply Cap Update 23.05.2023

[Llamaxyz]

---

title: [ARFC] Polygon Supply Cap Update 23.05.2023
discussions:
shortDescription: Increase Supply Cap MaticX on Polygon v3 from 29.3M units to 38.0M units.
author: @Llamaxyz - @TokenLogic
created: 2023-05-23

---

Summary

This publication proposes increasing the MaticX Supply Cap on Polygon v3 from 29.3M units to 38.0M units.

Abstract

The current Supply Cap’s utilisation is hovering around 95.4%, with 1.33M units of MaticX deposit capacity. The previous Supply Cap increase from 17.2M to 29.3M is filling rapidly. This publication seeks to increase the Supply Cap in effort to enable MaticX deposit growth to continue.

Motivation

Over the previous months, Llama has been working with various communities to craft favourable conditions conducive to growing TVL and Revenue by facilitate the creation of several yield aggregation products.

With Liquidity Mining (LM) ongoing, MaticX deposit rewards (SD) and wMATIC borrowing rewards (stMATIC & MaticX), it is important that Aave DAO ensures there is adequate capacity to enable the many yield maximising products built on Aave v3 to grow.

With an abundance of wMATIC deposits and LM ongoing, we are experiencing exception MaticX deposit growth.

To facilitate the continued growth of MaticX, this proposal seeks to increase the Supply Cap to 75% of supply on Polygon. This is the maximum counterparty risk Aave DAO has voted to support.

Current MaticX supply on Polygon is 50,559,800 units. Therefore the newly proposed Supply Cap is 38,000,000 units (rounded up). The author expects a whale to be moving liquidity from Ethereum to Polygon, if this was to occur in the next day or so, then the proposed Supply Cap will be raised, with support from one risk service provider.

With reference to the new ARFC Aave V3 Caps update Framework the preferred path forward is to implement several upgrades to gradually increase Aave’s MaticX exposure over time.

Specification

Ticker: MaticX

Contract: polygon: 0xfa68FB4628DFF1028CFEc22b4162FCcd0d45efb6

Parameter	Current Value	Proposed Value
SupplyCap	29.3M units	38.0M units

Copyright

Copyright and related rights waived via CC0.

[0xkeyrock.eth]

We support this Supply cap increase. There is clearly enough demand for yield maximisation.

[ChaosLabs]

Per our supply cap methodology and community preference for LSD caps, we support the increase suggested in this post. We conducted stress tests simulating depeg scenarios yielding the results in the graphs below.

[Gauntlet]

Under the current implementation for LST Emode, Gauntlet believes this cap increase for MaticX is premature. Our methodology, as tailored to how LSTs are currently priced, thresholds the supply cap to 50% of the local supply which in this case is 27m. MaticX pricing must move to the synchronized price adapter solution, and the community align on potential “killswitches” in the event of MaticX depeg, for this cap increase to not add excess market risk.

[Llamaxyz]

Hi everyone

In line with the current governance process, this proposal will be escalated to Snapshot.

YAE - vote shows support for the Chaos Labs supported parameters
NAE - No change, reflective of Gauntlets analysis
ABSTAIN

A YAE vote is to implement the below Supply Cap increase:

Parameter	Current Value	Proposed Value
SupplyCap	29.3M units	38.0M units

Snapshot:
https://snapshot.org/#/aave.eth/proposal/0xbbb92805d7b15d46d668cdc8e40d9a15e6a3ed2ac94802667e7d3c35a763bc8c

[MarcZeller]

Hello, the ACI is supportive of this proposal and will vote accordingly in the snapshot vote.

[Llamaxyz]

Hi @MarcZeller

For transparency, pending the outcome of the Snapshot vote we intend to see if the Risk Stewards are willing to implement the change. If not, we will seek to submit and AIP to implement the change.

Thank you for showing support for this proposal.

[Llamaxyz]

Hi @Gauntlet,

Can you please advise if the Risk Stewards are able to process this Supply Cap increase in line with the Snapshot vote linked earlier in the comments.

[Gauntlet]

Hi @Llamaxyz ,

We won’t be able to process the supply cap increase via Risk Stewards because the proposed amount (38M) is higher than our recommended threshold (27M) based on our methodology, as tailored to how LSTs are currently priced, mentioned above. If you’d like to proceed forward with the change, please submit AIP. Thanks.