Summary
A proposal to:
- Increase weETH’s supply cap on the Ethereum main instance.
- Increase weETH’s supply cap on the Base instance.
weETH (Ethereum Main)
weETH’s supply cap utilization has reached 90%.
Supply Distribution
The supply of weETH is highly concentrated, with the top supplier representing 30% of the supply. However, the top position represents minimal risk thanks to active management and highly correlated collateral and debt assets. Among the top 10 suppliers, eight are borrowing wstETH or WETH, both of which are highly correlated with weETH, significantly reducing liquidation risk. The remaining two positions maintain high health scores and do not pose any significant concerns at this time.
The largest borrowed asset against weETH is WETH, accounting for 95% of the total distribution, significantly reducing the likelihood of large-scale liquidations.
Liquidity
weETH’s liquidity has shown fluctuations but has recently exhibited signs of improvement. Currently, selling 13K weETH incurs less than 5% price slippage.
Recommendations
Given safe user behavior, sufficient on-chain liquidity, and the recent growth in on-chain supply, we recommend increasing the supply cap to 1.72M.
weETH (Arbitrum)
weETH’s supply cap utilization has reached 78%.
Supply Distribution
The supply distribution of weETH poses minimal risk. Among the top 10 suppliers, all have borrowed wstETH or WETH, both highly correlated with weETH, mitigating liquidation risk.
The largest borrowed asset against weETH is WETH, accounting for 97% of the total distribution.
Liquidity
weETH’s liquidity has remained generally stable and has shown increases over the past month. Currently, a 400 weETH sell incurs less than 5% slippage.
The asset growth on Arbitrum has slowed down considerably and stalled since may 2024.
Recommendations
Based on the analysis of user behavior, a supply cap increase seems justified. However, given the limited total supply of weETH on Arbitrum and its slow recent growth, we do not recommend increasing the supply cap at the current time.
Chaos Labs is prepared to support a supply cap increase following a growth in the supply and its utilization on the chain.
weETH (Base)
weETH’s supply cap utilization has reached 88%.
Supply Distribution
The supply of weETH on Base is fairly distributed among top suppliers, with no significant concentration. All top weETH suppliers on Base are borrowing WETH, significantly reducing liquidation risk.
The largest borrowed asset against weETH is WETH, accounting for 98% of the total distribution.
Liquidity
weETH’s liquidity has remained stable and has shown increases over the past month, currently, a 300 weETH sell incur less than 3% slippage.
The asset’s utilization and demand on the chain continue to grow, with its supply reaching 69K weETH.
Recommendations
Given safe user behavior, sufficient on-chain liquidity, and the recent growth in on-chain supply and demand, we recommend increasing the supply cap to 80,000 weETH.
Specification
| Instance | Asset | Current Supply Cap | Recommended Supply Cap | Current Borrow Cap | Recommended Borrow Cap |
|---|---|---|---|---|---|
| Ethereum Main | weETH | 1,400,000 | 1,720,000 | - | - |
| Base | weETH | 64,000 | 80,000 | - | - |
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