Summary
A proposal to:
- Increase the supply cap of sUSDe on the Mantle Instance
- Increase the supply cap of USDe on the Mantle Instance
- Increase the supply cap of wrsETH 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 80 million tokens within 24 hours since our previous recommendation to double the supply capacity of the asset, indicating substantial demand to loop the asset on Mantle.
Supply Distribution
The supply distribution of sUSDe is moderately concentrated as the top user represents approximately 25% of the total while top 3 account for 54%. As can be observed below the suppliers are primarily utilizing sUSDe in pair with USDe to recursively borrow USDT0 in order to maximize the notional exposure to the difference between the borrow rate of USDT0 and underlying yield of sUSDe. The distribution of health factors is aligned with the expected user behavior, as the users are trying to maximize the exposure the positioning becomes relatively aggressive resulting in health factors around 1.03. Given the high correlation of the debt and collateral assets in the market, the liquidation risk is relatively constrained.
Liquidity
sUSDe liquidity is primarily allocated in sUSDe/USDe pools on Merchant Moe and Agni Finance. The TVLs of the respective pools are currently at $6 and $13 million, supporting a moderate increase of the supply caps.
Recommendation
Given the persistent demand to supply sUSDe in leveraged looping strategies, the limited liquidation risk implied by the high correlation between collateral and debt assets, and available on-chain liquidity, we recommend increasing the supply cap of sUSDe on the Mantle instance.
USDe
USDe has reached 70% of its supply cap on the Mantle instance. Demand is primarily driven by users participating in Ethena’s Liquid Leverage incentive campaign, employing recursive borrowing strategies to increase notional exposure to the yield differential between sUSDe and USDT0 borrow costs. While the supply cap utilization has not reached a high level yet, we are coupling the increase of the USDe capacity with sUSDe increase in order to not constrain participation in the Liquid Leverage incentive program.
Supply Distribution
The USDe supply market exhibits moderate concentration, with the top 2 users representing 43% of supply. As can be observed USDe is typically deployed alongside sUSDe with users taking part in leveraged looping strategies, repeatedly borrowing and re-depositing yield-bearing assets to maximize exposure to the spread differential between underlying yield and borrowing costs. Health factors cluster around 1.03; given the high correlation between collateral and debt, liquidation risk remains limited.
Liquidity
The majority of USDe liquidity is deployed in USDe/USDT Merchant Moe pool. At the time of writing, a sell order of 2 million USDe would result in approximately 5 basis points price impact, supporting an increase of the supply cap.
Recommendation
Given that USDe is used primarily within Liquid Leverage strategies, which generate substantial stablecoin borrowing demand and exhibit minimal risk due to the high correlation between debt and collateral assets, along with adequate on-chain liquidity, we recommend increasing the supply cap of USDe on the Mantle instance.
wrsETH
wrsETH has reached its supply cap of 36,000 tokens on the Mantle instance. Demand to supply the asset is driven by participation in leveraged staking strategies and the ongoing supply-side incentives for wrsETH.
Supply Distribution
wrsETH supply is highly concentrated, with 4 users representing over 95% 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 1.02; given the high correlation between collateral and debt, liquidation risk is highly limited.
Liquidity
wrsETH liquidity is currently concentrated in a wrsETH/WETH Merchant Moe pool with a TVL of approximately $1.1 million, supporting an increase of the supply cap.
Recommendation
Given the persistent demand to utilize wrsETH in leveraged restaking strategies, limited liquidation risk, and adequate on-chain liquidity, we recommend increasing the supply cap of wrsETH on the Mantle instance.
Specification
| Instance | Asset | Current Supply Cap | Recommended Supply Cap | Current Borrow Cap | Recommended Borrow Cap |
|---|---|---|---|---|---|
| Mantle | sUSDe | 80,000,000 | 160,000,000 | - | - |
| Mantle | USDe | 80,000,000 | 160,000,000 | 72,000,000 | - |
| Mantle | wrsETH | 36,000 | 48,000 | - | - |
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.