Thanks @Marin for your open questions on the relationship between liquidity and the supply caps. We’ve published our methodologies here where in our LST supply cap computation, we take into account the liquidity conditions for each asset amidst both hypothetical depeg events and normal conditions. Our framework balances both these conditions to create supply caps that are flexible for all market conditions.
From a risk perspective, Gauntlet did not support the MaticX supply cap increase to the current 29M, whereas we have been supporting stMATIC supply cap increases. That being said, the community preferred to increase MaticX caps at the time, so as a result both MaticX and stMATIC have similar supply caps, which currently are little under 50% circulating supply. For additional context, our current methodology recommends a cap of 21M for MaticX and 33M for stMATIC, where the differentiating factor is indeed the liquidity of the assets.
Gauntlet has consistently maintained our stance that the supply cap should be thresholded at 50% of the circulating supply, to avoid supply concentration and tail risk from LST depegs. Now that the synchronized price adapters have been executed, Aave is one step closer to safely supporting more aggressive parameters for LSTs. We believe the final step should be community alignment on how LST markets should behave when significant depegs occur - whose length magnitude, cause, and permanence are impossible to predict.