Summary
A proposal to:
- Increase SCR’s borrow cap on the Scroll instance.
- Increase wstETH’s borrow cap on the Scroll instance.
- Increase wS’s supply and borrow caps on the Sonic instance.
- Increase WETH’s supply cap on the Sonic instance.
- Increase USDC.e’s supply cap on the Sonic instance.
- Increase WETH’s supply cap on the Ethereum core instance.
- Increase osETH’s supply cap on the Ethereum core instance.
SCR (Scroll)
SCR’s supply cap utilization has reached 72%, while its borrow cap utilization has hit 100%.
Supply Distribution
The supply distribution of SCR presents minimal liquidation risk. Among the top 10 SCR suppliers, none have borrowing activity, effectively eliminating any liquidation concerns at this time.
Borrow Distribution
All of SCR’s top borrowers present minimal liquidation risk, as most maintain strong health scores. The only position with a health score near 1 does not pose a significant concern, as it has borrowed less than $1K worth of SCR.
The largest collateral asset against SCR is WETH, accounting for 72.1% of the distribution.
Liquidity
SCR’s liquidity has remained stable over the past two months and has increased in the past 20 days. Currently, a 100K SCR sell incurs less than 7.5% price slippage.
Recommendation
Given user behavior and on-chain liquidity, we recommend doubling the borrow cap.
wstETH (Scroll)
wstETH’s supply cap utilization stands at 23%, while its borrow cap utilization has reached 100%.
Supply Distribution
The supply of wstETH presents minimal liquidation risk, as top suppliers either have no borrowing activity or are borrowing highly correlated assets such as WETH and weETH.
Borrow Distribution
wstETH’s borrow distribution presents some liquidation risk, as the top borrower maintains a health score of 1. However, since this user is only borrowing WETH against wstETH, the concern remains limited.
Among the other top borrowers, most are using weETH or WETH as collateral to borrow wstETH, with only one position using USDC as collateral. This position maintains a health score above 2, significantly reducing the overall liquidation risk.
WETH is the largest collateral asset against wstETH, accounting for 86.23% of the total distribution, significantly reducing the likelihood of large-scale liquidations.
Liquidity
wstETH’s liquidity has declined over the past two months, with a 100 wstETH sell currently incurring less than 10% price slippage. Given this, we will take a conservative approach in our cap recommendations.
Recommendation
Given user behavior and on-chain liquidity, we recommend increasing the borrow cap to 1.3K wstETH.
wS (Sonic)
wS’s supply cap utilization has reached 80%, and its borrow cap utilization has reached 100%.
Supply Distribution
The largest wS supplier holds approximately 50% of the total distribution, presenting a concentration risk. However, with a health score of 5.99, the likelihood of liquidation for this user is significantly reduced.
Additionally, four of the top suppliers have no borrowing activity, posing no immediate liquidation risk. Among the remaining top suppliers, they either maintain high health scores or are engaged in looping wS, further minimizing the overall liquidation risk.
Currently, the top borrowed asset against wS is USDC.e, accounting for 83.76% of the total distribution. However, the total borrowed amount remains relatively small compared to the total supply, standing at only $3M.
Borrow Distribution
The borrow distribution of wS presents limited liquidation risk. Except for one position looping wS itself, all other borrower positions maintain a health score above 1.2, significantly reducing the likelihood of liquidation.
The largest collateral asset against wS is WETH, accounting for 55% of the total distribution, followed by USDC.e as the second-largest.
Recommendation
Given user behavior and on-chain liquidity, we recommend doubling the supply and borrow caps.
WETH (Sonic)
WETH’s supply cap utilization has reached 98%, while its borrow cap utilization stands at 55%.
Supply Distribution
The largest WETH supplier holds approximately 23% of the total supplied assets, presenting a minor concentration risk. However, since this position has no borrowing activity, it does not pose any liquidation risk at this time. Among the remaining top suppliers, they either maintain high health scores (>1.2) or have no borrowing activity, further reducing liquidation risks.
The largest borrowed asset against WETH is USDC.e, accounting for 73% of the total borrowed asset distribution.
Recommendation
Given user behavior and on-chain liquidity, we recommend increasing its supply cap to 15.6K.
USDC.e (Sonic)
USDC.e’s supply cap utilization has reached 99%, while its borrow cap utilization stands at 32%.
Supply Distribution
The largest USDC.e supplier holds 27% of the total distribution, presenting some concentration risk. However, since this user has no borrowing activity, it does not pose any liquidation risk at this time. Similarly, the second-largest supplier also has no borrowing activity, further minimizing liquidation risk.
The remaining suppliers either maintain a high health score (> 1.2) or are borrowing USDC.e while using it as collateral, significantly reducing liquidation risks.
The largest borrowed asset against USDC.e is USDC.e itself, significantly reducing the likelihood of large-scale liquidations.
Recommendation
Given user behavior and on-chain liquidity, we recommend increasing the supply cap to 120M and borrow cap to 110M USDC.e.
WETH (Ethereum Core)
The supply and borrow cap utilization of WETH have both reached 85%.
Supply Distribution
The top WETH supplier holds 21.8% of the total WETH supplied, presenting some concentration risk. However, since this address has no borrowing activity, it does not pose any liquidation risk at this time.
Among the remaining top suppliers, all positions either have no borrowing activity or maintain a high health score (>1.3). Additionally, each top supplier is actively managing their position, further reducing the risk of liquidation.
The largest borrowed asset against WETH is USDT, followed by USDC as the second-largest. Together, these two assets account for approximately 87% of the total borrowed assets.
Borrow Distribution
The borrow distribution of WETH is well-balanced. Among the top 10 borrowers, 9 positions use weETH or wstETH as collateral, both of which are highly correlated with WETH, significantly reducing liquidation risk.
The only position using cbBTC as collateral maintains a high health score of 1.4 and is actively managing his position, posing no significant concern at this time.
The largest collateral asset against WETH is weETH, followed by wstETH as the second-largest, aligning with our analysis of top borrower behavior.
Liquidity
WETH’s liquidity has remained stable over the past three months, currently allowing a 20K WETH sell with less than 3% price slippage.
Recommendation
Given user behavior and on-chain liquidity, we recommend increasing the supply cap to 3M WETH and borrow cap to 2.7M WETH.
osETH (Ethereum Core)
The supply cap utilization of osETH has reached 88%.
Supply Distribution
The supply of osETH is well-distributed, with all top suppliers borrowing WETH, a highly correlated asset. This significantly reduces the risk of liquidation.
The largest borrowed asset against osETH is WETH, accounting for 99% of the total borrowed asset distribution, significantly reducing the likelihood of large-scale liquidations.
Liquidity
osETH’s liquidity has remained stable over the past three months, with a slight increase in the past month. Currently, selling 8K osETH incurs less than 2% price slippage.
Recommendation
Following the launch of the Boost incentive program by StakeWise, the demand to supply osETH on Aave has increased significantly, hence given the safe user’s behaviour and growing liquidity we recommending increasing the supply cap further than osETH’s on-chain supply as we expect the asset’s growth to continue.
Specification
| Instance | Asset | Current Supply Cap | Recommended Supply Cap | Current Borrow Cap | Recommended Borrow Cap |
|---|---|---|---|---|---|
| Scroll | SCR | 1,080,000 | - | 18,000 | 36,000 |
| Scroll | wstETH | 10,000 | - | 1,000 | 1,300 |
| Sonic | wS | 80,000,000 | 160,000,000 | 10,000,000 | 20,000,000 |
| Sonic | WETH | 12,000 | 15,600 | 5,500 | - |
| Sonic | USDC.e | 80,000,000 | 120,000,000 | 76,000,000 | 110,000,000 |
| Ethereum Core | WETH | 2,420,000 | 3,000,000 | 2,200,000 | 2,700,000 |
| Ethereum Core | osETH | 144,000 | 200,000 | - | - |
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