Summary
A proposal to:
- Increase the supply and borrow caps of USDC on the Mantle Instance
- Increase the supply and borrow caps of USDe on the Mantle Instance
- Increase the supply cap of wrsETH on the Mantle Instance
- Increase the borrow cap of WETH on the Mantle Instance
- Increase the supply cap of syrupUSDT 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.
USDC (Mantle)
USDC has reached its supply cap of 40 million on the Mantle instance; the flow of deposits is primarily attributable to the ongoing incentives, which push the net supply rate to approximately 5.42%.
Supply Distribution
USDC supply exhibits mild concentration, as the top position represents approximately 18% of the market. As USDC is configured as a borrow-only asset, no liquidation risk is present on the supply side of the USDC market.
Borrow Distribution
USDC borrow distribution is relatively more concentrated, with the top borrower accounting for approximately 40% of all debt. The majority of users collateralize USDC debt using syrupUSDT or WETH. Health factors align with expected behavior. Positions with correlated collateral and debt cluster near a 1.03 health factor, while WETH-collateralized positions are generally in the 1.3-1.5 range.
Recommendation
Considering the persistent demand to both supply and borrow USDC and observed user behavior, we recommend expanding the supply and borrow caps of the asset on the Mantle instance.
USDe
USDe has reached its supply cap of 40 million, while exhibiting extremely low borrow utilization, specifically, utilization is currently 0.37%, resulting in a borrow rate of 0.02%.
Supply Distribution
The USDe supply market is highly concentrated, with four users representing the overwhelming majority of supply. These users appear to be participating in Ethena’s Liquid Leverage incentive campaign. The observed strategy can be classified as leveraged looping, as users repeatedly borrow and re-deposit via yield-bearing assets to increase notional exposure to the spread differential between underlying yield and borrowing costs.
Borrow Distribution
As mentioned previously, USDe debt accumulation has been minimal since the listing on Mantle. At the time of writing, total borrowing is less than 100,000 tokens. Given the minimal absolute size of the debt market, liquidation risk is negligible.
Liquidity
The majority of USDe liquidity is currently deployed across Agni Finance and Merchant Moe in USDT and USDC pools, which then route via USDT/USDT0 in order to finalize the swap. At the time of writing, a sell order of 3 million USDe would result in a 2.75% price impact, supporting a moderate increase of the supply cap.
Recommendation
Given that USDe is used primarily in Liquid Leverage, which generates substantial stablecoin borrowing demand and exhibits minimal risk due to the high correlation between the debt and collateral assets, along with ample on-chain liquidity, we recommend increasing the asset’s supply cap.
wrsETH (Mantle)
wrsETH has reached 99.5% of its supply cap of 24,000 tokens on the Mantle instance. The demand to supply the asset is driven primarily by relatively low WETH borrow rates and supply incentives for wrsETH.
Supply Distribution
wrsETH supply is highly concentrated, with four users representing over 99% of the market. These users borrow WETH against wrsETH collateral, increasing exposure to the spread between wrsETH’s underlying yield and WETH borrowing costs. Health factors cluster around 1.03, which, given the high correlation between collateral and debt, presents highly limited liquidation risk.
Liquidity
wrsETH liquidity is currently concentrated in a wrsETH-WETH Merchant Moe pool with a TVL of approximately $1.2 million, supporting meaningful unwinds if the market conditions deviate.
Recommendation
Given the persistent demand to utilize wrsETH in leveraged restaking strategies, limited liquidation risk, and ample liquidity, we recommend increasing the supply cap of wrsETH.
WETH
WETH reserve utilization is currently at 85% of the 28,000 borrow cap. While the supply cap is at 35,000 out of 60,000 tokens, the borrow cap is not aligned to be above UOptimal—resulting in subpar supply rates even at full utilization of borrowing capacity. To grow the market sustainably, we recommend aligning the borrowing capacity with the supply cap.
Borrow Distribution
As mentioned previously, WETH borrowing is fueled primarily by wrsETH, with four users accounting for over 99% of borrowing demand. The borrowing demand in this case is derived from the differential between the underlying appreciation rate of wrsETH and borrowing costs of WETH, as the users are participating in leveraged restaking strategies. Given the correlation between the debt and collateral assets, the borrowing side of the WETH market presents minimal risk.
Recommendation
Given the increasing WETH debt volume and minimal risk associated with the positions, we recommend expanding the borrow cap of the asset to align it better with current supply capacity.
syrupUSDT
In our previous review, we recommended reducing the syrupUSDT supply cap to 57 million tokens due to limited on-chain liquidity. Since then, liquidity conditions have improved and a dedicated pool has been established. We therefore revisit our prior recommendation and propose an updated supply cap.
Supply Distribution
syrupUSDT supply exhibits moderate concentration, with the top four users accounting for 70% of the market. As shown below, users are recursively borrowing USDT0 and USDC against syrupUSDT collateral to increase notional exposure to the spread between syrupUSDT’s underlying yield and stablecoin borrowing costs. Health factors cluster around 1.02; given the high correlation between collateral and debt, liquidation risk appears limited.
Liquidity
syrupUSDT on-chain liquidity is available primarily in a USDT0/syrupUSDT pool. At the time of writing, the pool has approximately $4.8 million in TVL, supporting a moderate increase in the supply cap.
Recommendation
Given syrupUSDT’s role in incentivizing stablecoin borrowing demand, the limited risk implied by observed user behavior, and improved on-chain liquidity, we recommend increasing the supply cap of syrupUSDT.
Specification
| Instance | Asset | Current Supply Cap | Recommended Supply Cap | Current Borrow Cap | Recommended Borrow Cap |
|---|---|---|---|---|---|
| Mantle | USDC | 40,000,000 | 60,000,000 | 38,000,000 | 57,000,000 |
| Mantle | USDe | 40,000,000 | 80,000,000 | 36,000,000 | 72,000,000 |
| Mantle | syrupUSDT | 57,000,000 | 80,000,000 | - | - |
| Mantle | wrsETH | 24,000 | 36,000 | - | - |
| Mantle | WETH | 60,000 | - | 28,000 | 56,000 |
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.