Summary
A proposal to increase the supply 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.
USDT0 (Mantle)
USDT0 has reached over 92% of its $400 million supply cap on the Mantle instance, following an inflow of approximately $250 million in the past 24 hours. The rapid growth of the market can be attributed to moderate borrowing demand and supply-side incentives, which result in the current supply yield of 4.17%.
Supply Distribution
The supply distribution of USDT0 on the Mantle instance is highly concentrated, as the top user accounts for 65% of the market, while the top two users account for approximately 93%. Given that USDT0 is configured as a non-collateral, borrow-only asset, no liquidation risk can be assumed; nevertheless, extreme supplier concentration poses substantial rate volatility risk. If either of the top two suppliers were to withdraw, utilization would spike, pushing rates above target. While such dynamics do not pose any direct risk to the protocol, they can impact the highly leveraged sUSDe/USDe and syrupUSDT loopers, which are the primary borrowers of USDT0, potentially causing them to unwind.
Borrow Distribution
The USDT0 borrow distribution exhibits a substantially lower level of concentration. Specifically, the top user accounts for 25%, while the top two represent approximately 40%. As can be observed below, USDT0 debt is primarily accumulated via syrupUSDT and sUSDe/USDe collateral. Given the correlation between the debt and collateral asset prices, the risk of large-scale liquidations in the market is fairly limited.
Recommendation
Given that the market currently presents limited risk due to the non-collateral configuration of USDT0 and conservative borrowing behavior, we recommend increasing the supply cap for USDT0 to facilitate the continued growth of the Mantle instance.
Specification
| Instance | Asset | Current Supply Cap | Recommended Supply Cap |
|---|---|---|---|
| Mantle | USDT0 | 400,000,000 | 800,000,000 |
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.