Given the current market conditions and sparse liquidity across DEXs, we believe a more conservative approach is warranted, particularly concerning low-to-mid-market-cap assets.
This analysis lacks sufficient supporting data or reasoning behind each of the recommendations. Without a better understanding of the risk-reward tradeoffs considered in this analysis, evaluating these recommendations and supporting this proposal becomes incredibly challenging.
Could @Gauntlet please provide additional supporting data and context for each asset’s recommendation? For instance, how were the recommended supply values derived? What liquidity does the analysis rely on?
- We support the proposed increase for LINK (Polygon).
- We recommend a modest increase of the supply cap for LINK (Arbitrum) to 810,000.
- We do not recommend increasing the supply caps for AAVE (Arbitrum) and DPI (Polygon).
Based on our supply cap methodology, we support increasing the supply cap for LINK on Polygon by 2X.
Based on our supply cap methodology, we support increasing the supply cap for LINK on Arbitrum.
Although our methodology permits a higher increase, we recommend increasing the cap to 810,000 LINK, as we are seeing a trend of decreasing DEX liquidity, as can see in the graph below. This approach allows for a more measured cap setting that won’t impede growth, especially given the availability of the Risk Steward process, allowing immediate cap increases in response to growing demand.
The middle graph below shows the amount of LINK tokens that can be sold under the corresponding price impact price (shown in the legend) in the main Uniswap V3 pool.
Due to the extremely low liquidity for AAVE on Arbitrum, we do not recommend increasing the supply cap.
The middle graph shows the amount of AAVE tokens that can be swapped for WETH under the corresponding price impact price (shown in the legend) in the main Uniswap V3 pool.
Considering the current extremely low liquidity for DPI on Polygon, alongside the lack of clear demand (given the current utilization rate is approximately 78%), we advise against increasing the supply cap at this time.