Overview
Chaos Labs recommends increasing the Slope2 for WETH on the Plasma instance from 8% to 14%. The change is aimed to reflect and approximate the change performed by the Slope2 Risk Oracle in the market prior to its activation.
Motivation
The Slope2 Risk Oracle is designed to mitigate the risks of prolonged liquidity stress by introducing a time-aware, convex post-kink interest rate response that grows as a function of both utilization overshoot and duration spent above the kink. This mechanism explicitly accounts for persistent utilization pressure, rather than isolated spikes, and encodes a bounded escalation curve that aligns borrower incentives over time without relying on abrupt or punitive rate jumps. As a result, it delivers smoother deleveraging paths for borrowers while maintaining an attractive solvency profile for suppliers, especially in environments with high leverage, supplier concentration, or discrete liquidity shocks.
On the Plasma WETH market, we recently observed a prolonged stress episode in which utilization rose from ~80% to full utilization within two hours and remained effectively pinned between 99–100% for a period of over 24 hours. This regime was triggered by a sharp 20% contraction in supplied liquidity, falling from ~10,000 WETH to ~8,000 WETH, while outstanding borrow remained largely unchanged, indicating a supply-side withdrawal as the primary driver. With the Slope2 Risk Oracle not currently deployed on Plasma, the post-kink rate path remained static, capping borrower APR at ~10.5% throughout the episode, insufficient to induce timely deleveraging or attract fresh liquidity. To approximate the behavior of the oracle under similar stress, we propose increasing Slope2 to 14%, which would raise the full-utilization borrow rate to ~16.5%, creating stronger and more time-aligned incentives for borrowers to exit risk during extended tight-liquidity regimes. This change preserves boundedness while improving the responsiveness of the interest rate curve to whale-driven supply contractions and persistent utilization pressure.
Specifications
| Instance | Asset | Current Slope2 | Recommended Slope2 |
|---|---|---|---|
| Plasma | WETH | 8% | 14% |
Next Steps
We will move forward and implement these updates via the Risk Steward process.
Disclosure
Chaos Labs has not been compensated by any third party for publishing this AGRS recommendation.
Copyright
Copyright and related rights waived via CC0.