We do not support an immediate increase of the caps to the recommended figures in the post, which would represent a 373% increase. Our standard practice is to gradually increase caps while closely analyzing usage and position distribution in an iterative process.
For wstETH on Arbitrum, the two largest suppliers (wallet1, wallet2) are currently utilizing their wstETH collateral to borrow WBTC and USDC. By utilizing our stress testing framework, we found that increasing the wstETH supply by 2X, to a cap of 9,300, does not increase the VaR of the system. However, we need to observe how new positions are distributed. For example, we anticipate more leveraging of the wstETH-ETH loop on E-Mode, similar to that seen on other networks. We keep monitoring protocol risk using our stress-testing scenarios, based on the current position distribution, usage, and trends.
Given the above, we recommend increasing the supply cap by 2X to 9,300.
