Summary
A proposal to:
- Increase the supply cap of sUSDe on the Mantle Instance
- Increase the borrow cap of USDT0 on the Mantle Instance
All cap increases are backed by Chaos Labs’ risk simulations, which consider user behavior, on-chain liquidity, and price impact, ensuring that higher caps do not introduce additional risk to the platform.
sUSDe
sUSDe has reached its supply cap of 160 million tokens, indicating persistent demand to loop the asset on Mantle. We associate the elevated observed dynamics with substantial borrow-side incentives for USDT0, which increase the net APY in sUSDe stablecoin loops.
Supply Distribution
The supply distribution of sUSDe is highly concentrated, as the top account represents approximately 55% of the market, while the top four wallets collectively account for 85%. As can be observed below, users are participating in leveraged looping strategies by recursively supplying yield-bearing collateral to borrow USDT0, thereby scaling their notional exposure to the rate differential between sUSDe’s underlying yield and USDT0 borrowing costs. The majority of positions exhibit health scores around 1.03. Given the high correlation between collateral and debt assets in these strategies, such positioning presents limited liquidation risk. One position exhibits a health score above 15, which is atypical for this type of market; upon further inspection, the user appears to be unwinding.
Liquidity
sUSDe liquidity is primarily concentrated in sUSDe/USDe pools on Merchant Moe and Agni Finance. The TVLs of the respective pools are currently at $6 and $13 million. While these figures are modest relative to the proposed cap, the high correlation between sUSDe and USDT0 substantially constrains the practical liquidation risk, meaning the available liquidity is sufficient to support a moderate increase of the supply cap.
Recommendation
The persistent demand to deploy sUSDe in leveraged looping strategies, combined with limited liquidation risk attributable to the high correlation between collateral and debt assets and on-chain liquidity depth, supports a recommendation to increase the supply cap of sUSDe on the instance.
USDT0
While USDT0 has not yet reached its borrow cap of 380M tokens, we expect significant growth driven primarily by the increase of sUSDe supply caps. As such we ensure sufficient borrowable size is available at the time of execution.
Borrow Distribution
The borrow distribution of USDT0 exhibits substantial concentration both on the supply and borrow sides of the market. The concentration levels on the debt distribution are substantially more relaxed with the top user accounting for 33% of the market, while top five representing approximately 71%.
As can be observed below the primary collateral assets driving borrow demand are stablecoins such as sUSDe, USDe and syrupUSDT. The observed behavior is highly typical to leveraged looping strategies where users recursively underwrite stablecoin debt with yield-bearing collateral to maximize net returns. The distribution of the health factors follows the expectation, with the majority of positions being in the 1.02-1.05 range. While such positions are typically considered risky the high correlation of collateral and debt assets ensures minimal liquidation risk in the market.
Recommendation
Given the high correlation of the primary debt position, and the growing demand for USDT0-denominated debt, we support an increase of USDT0 borrow cap on the Instance.
Specification
| Instance | Asset | Current Supply Cap | Recommended Supply Cap | Current Borrow Cap | Recommended Borrow Cap |
|---|---|---|---|---|---|
| Mantle | sUSDe | 160,000,000 | 240,000,000 | - | - |
| Mantle | USDT0 | 800,000,000 | - | 380,000,000 | 500,000,000 |
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.