Summary
A proposal to:
- Increase USDC’s supply and borrow caps on the Sonic instance.
- Increase wS’s supply cap on the Sonic instance.
- Increase WETH’s supply and borrow caps on the Sonic instance.
USDC (Sonic)
The supply cap utilization of USDC has reached 100%, while its borrow cap utilization stands at 50.3%.
Supply Distribution
The supply distribution of USDC is highly concentrated, with the top user representing 24% of the deposits. Two of the top 10 users in the USDC pool maintain supply-only positions, while the remaining users perform USDC to USDC looping, hence maintaining a 1:1 correlation between collateral and borrowed assets. None of the top positions pose a liquidation risk.
Borrow Distribution
While the borrow distribution of USDC is less concentrated than its supply, the top two addresses still represent a significant portion of the demand. Out of the top 10 USDC borrow positions, all of them maintain USDC collateral, making their positions safe from price deviation.
Hence the top positions don’t pose a liquidation risk.
Recommendation
Given user behavior and on-chain liquidity, we recommend increasing the supply cap to 80M USDC and borrow cap to 76M USDC to allow for the full utilization of the asset.
wS (Sonic)
wS’s supply cap utilization has reached 100%, while its borrow cap remains at 15.5%.
Supply Distribution
The wS supply distribution is highly concentrated, with the top 2 supplier holding the entirety of the supply. The top user maintains a safe health score of 4.2 while looping over its USDC borrow position, while the second biggest position remains supply only, hence making their liquidation risk minimal.
USDC currently represents the only asset being borrowed against wS collateral.
Liquidity
Despite the recent market drawdown, WS’s liquidity has shown continued growth since listing. A 3M wS sale incurs 1% price slippage. This liquidity remains sufficient to support a supply cap increase.
Recommendation
Given user behavior and on-chain liquidity, we recommend increasing the supply cap to 80M wS.
WETH (Sonic)
The supply cap utilization of WETH has reached 100%, while its borrow cap utilization stands at 81.5%.
Supply Distribution
The supply distribution of WETH is somewhat concentrated, with the top user representing 33% of the deposits. Three of the top 10 users in the USDC pool maintain supply-only positions. In contrast, the remaining users borrow wS or USDC against WETH collateral. However, these positions maintain safe health scores and are actively managed. Hence the liquidation risk posed by them remains minimal.
Borrow Distribution
The borrow distribution of WETH is significantly more concentrated than its supply; the top addresses, which represent the majority of the borrowing demand, use USDC as the collateral asset for the position, hence exposing it to some liquidation risk. However, its health score remains over 1.5 hence reducing the risk posed to the protocol.
Recommendation
Given user behavior and on-chain liquidity, we recommend increasing the supply cap to 12,000 WETH and borrow cap to 5,500 WETH to allow for the full utilization of the asset.
Specification
| Instance | Asset | Current Supply Cap | Recommended Supply Cap | Current Borrow Cap | Recommended Borrow Cap |
|---|---|---|---|---|---|
| Sonic | USDC | 40,000,000 | 80,000,000 | 38,000,000 | 76,000,000 |
| Sonic | wS | 40,000,000 | 80,000,000 | 10,000,000 | - |
| Sonic | WETH | 6,000 | 12,000 | 2,750 | 5,500 |
Next Steps
We will move forward and implement these updates via the Risk Steward process.
Disclaimer
Chaos Labs has not been compensated by any third party for publishing this ARFC.
Copyright
Copyright and related rights waived via CC0