[ARFC] Polygon v3 BAL Supply & Borrow Cap Increase

Governance
1

title: [ARFC] Polygon v3 BAL Supply & Borrow Cap Increase
author: @Llamaxyz - @TokenLogic
created: 2023-03-28

Summary

This publication seeks to increase the BAL Supply and Borrow Caps on Polygon v3 Liquidity Pool.

Abstract

The BAL Reserve Supply Cap is 85.00% and 96.24% utilised on Polygon v3. Both have been trending higher over time.

This publication presents a modest increase to the SupplyCap from 361,000 units to 400,000 units, representing an overal increase of 10.8%.

The utilisation of the BAL reserve is 96.24%. This publication seeks to increase the Borrow Cap from 256.14k units to 300k units, representing a 17.1% increase. The proposed BorrowCap is 75% of the proposed SupplyCap and is fractionally higher than 290k suggest by Gauntlet.

Motivation

The BAL reserve Supply Cap is currently at 84.91% utilisation.

The BAL reserve Borrow Cap is currently at 96.24% utilisation.

Both Supply Cap and Borrow Cap utilisation has been edging higher in recent weeks.

The previous proposal to adjust BAL Supply Cap did not implement any change to the Borrow Cap.

This proposal intends to increase the SupplyCap modestly by an additional 10.7%, or 39k units, from 361k units to a nice round 400k units.There is currently 24.55k units deposited into Aave v2 and sufficient capacity in Aave v3 to enable migration of user funds.

Given the strategic nature of BAL within the Aave ecosystem, this publication seeks to facilitate discussion around extending Aave’s exposure to BAL on Polygon.

Specification

The below shows the proposed changes to the BAL Supply Cap on Aave Polygon v3 Liquidity Pool.

Ticker: BAL

Token Contract: 0x9a71012B13CA4d3D0Cdc72A177DF3ef03b0E76A3

Parameter Current (%) Proposed (%)
Supply Cap 361,000 400,000
Borrow Cap 256,140 300,000

Copyright

Copyright and related rights waived via CC0.

1 Like
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The total BAL supplied to Aave, across V3 (306,860) and V2 (24,560) represents ~58% of the total circulating supply of BAL on Polygon (570,000).
Therefore, (and as stated before) we do not recommend increasing the supply cap at this time.

1 Like
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We agree with both @ChaosLabs and @Gauntlet here, this increase in the supply cap begins putting the protocol in risky territory.

Would it be possible to unfreeze BAL markets on ETH V2 or look to support BAL on ETH V3 (preferable) so that Aave can support larger supply and borrow caps?

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There is a proposal pending to add BAL to V3 Ethereum. We do not support unfreezing BAL on V2 at this time.

1 Like
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Hi @Gauntlet, @ChaosLabs,

Previous discussions on the forum have indicated the BAL BorrowCap could be increased to from 256,140 to 290,000 units. If there is still support for this figure, we can revise this proposal and incorporate this upgrade in an upcoming AIP submission. The potent AIP in mind is the wMATIC reserve Supply Cap proposal.

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We support the proposed borrow cap increase

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Hi Everyone :wave:

The payload for the BAL Borrow Cap increase (From 256,140, To 290,000 units) proposal will be combined with the wMATIC Supply Cap increase proposal.

@Llamaxyz expects to have the proposal with @bgdlabs for review later today.

1 Like
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Gauntlet still supports the borrow cap increase of BAL to 290k.

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Hi @ChaosLabs, @Gauntlet

If an LST can have a Supply Cap equal to 75% of supply on that network, then BAL with 538,896.64 units on Polygon could be eligible to have the Supply Cap of 404,172.48 units. The originally suggested 400,000 Supply Cap is beneath this threshold.

The same bridge is used for BAL as stMATIC and MaticX. Although, there is no redemption contract on Ethereum, like there is with the LSTs, there is an abundance of liquidity. Swapping CRV on Ethereum is faster than redeeming MaticX for MATIC. If Aave votes for 75% of circulating Supply Caps on Polygon LSTs, then a similar approach for other assets with better liquidity on Ethereum can be considered.

The below provides context supportive of the broader conversation.

Screenshot 2023-04-20 at 13.41.31
Screenshot 2023-04-20 at 13.41.31832×782 48.2 KB

There is 24.50K in deposits and 11,611.81 in borrowings of BAL in Polygon v2. There is currently sufficient room for the entire BAL to migrate from v2 to v3. Although, this can change with market conditions.

Screenshot 2023-04-20 at 13.51.11
Screenshot 2023-04-20 at 13.51.111544×734 49.4 KB

Screenshot 2023-04-20 at 13.51.24
Screenshot 2023-04-20 at 13.51.241562×694 53.1 KB

1 Like
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We do not recommend increasing the supply cap for BAL due to the high concentration of it on Aave on Polygon (~63%).

The consideration in increasing caps for Matic LSDs, potentially higher than the 50% native chain circulating supply (depending on community risk appetite), is the fact that they have calculated price feeds and are mainly being collateralized against MATIC, minimizing the potential for liquidations.