Summary
A proposal to:
- Increase the supply and borrow caps of PYUSD on the Ethereum Core Instance
- Increase the supply and borrow caps of USDtb on the Ethereum Core Instance
- Increase the supply and borrow caps of RLUSD on the Ethereum Core 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.
PYUSD (Ethereum Core)
PYUSD has reached its supply cap of 400 million tokens and its borrow cap of 240 million. With both supply and borrow cap utilizations near 100%, the asset shows signs of sustained undersaturation, prompting an increase of the supply cap.
Supply Distribution
The supply distribution of PYUSD shows moderate concentration, with the top user accounts accounting for approximately 10.5% and the top 12 users accounting for 69.75%. As can be observed, a subset of users is accumulating debt; specifically, suppliers are borrowing primarily stablecoins, including RLUSD, USDC, and USDe, which account for 68% of all debt. Given the position’s composition, the observed health factor distribution presents as safe due to the high correlation of debt and collateral assets.
Borrow Distribution
Borrow distribution of the asset exhibits a slightly higher level of concentration; specifically, the top borrowers hold approximately 30% of the total borrowing, while the top 5 borrowers account for 67%. As can be observed, the majority of the positions are collateralized by volatile assets like cbBTC, weETH, WETH, and WBTC, which represent 72% of all posted collateral. As the positions’ health scores are primarily in the 1.28-1.64 range, the risk of liquidations in the market is limited.
Liquidity
At the time of writing, PYUSD on-chain liquidity is sufficient to limit slippage on a 50 million USDT swap to a conservative 10 basis points, largely due to the presence of deep liquidity pools on Curve.
Recommendation
Considering the substantial outstanding demand to both lend and borrow the asset, along with conservative user behavior and ample on-chain liquidity, we recommend increasing the supply cap of PYUSD on the Ethereum Core instance.
USDtb (Ethereum Core)
Following the recent Direct-to-AIP for the USDtb oracle adjustment, the price of USDtb on the Ethereum Core instance is effectively anchored to USD. This change was prompted by sharp intraday secondary-market volatility in USDtb, which traded as low as $0.97 and as high as $1.01 within a single day. While these dynamics largely reflected order flow and liquidity conditions, the price has failed to capture the asset’s fundamental value. As a result, USDtb debt has temporarily fluctuated in price, creating material protocol risk and, in some cases, triggering liquidations.
To mitigate the risk of similar events going forward, the oracle design was updated to reduce exposure to the secondary market by anchoring USDtb pricing to USD. In parallel, we previously recommended contracting USDtb’s supply and borrow caps as a temporary risk-off measure while the oracle transition was in progress; specifically, setting the supply cap to 200M and the borrow cap to 70M.
With the oracle configuration adjustment completed, we recommend increasing the supply and borrow caps to better align with observed liquidity and demand.
RLUSD (Ethereum Core)
RLUSD has reached its supply and borrow caps of 600 million and 240 million tokens, respectively. While supply has been stagnant over the past 3 months due to supply cap constraints, borrowing has more than doubled, indicating elevated demand for the asset on the Ethereum Core instance.
Supply Distribution
As RLUSD is a borrow-only asset, which implies a lack of collateral power, the supply side of the market does not present any risk. Nevertheless, RLUSD’s supply is highly concentrated as the top user represents over 40% of the market. While this does not pose a risk for protocol, a sudden shift of supply caused by a withdrawal of one of the major suppliers can spike the borrowing rates, resulting in elevated borrowing costs.
Borrow Distribution
Borrow distribution of RLUSD exhibits a comparatively moderate concentration of positions; the top borrower represents roughly 21% of the market, while the top three account for 42%. As can be observed below, the distribution of health factors is primarily in the safe 1..2-1.5 range, presenting limited liquidation risk.
RLUSD debt is primarily collateralized by cbBTC WETH, weETH, which represent 45% of the posted collateral; at the same time, a substantial proportion of the users are utilizing stablecoins like PYUSD, USDe, sUSDe to underwrite PYUSD debt, and the share of collateral attributed to this asset sector is estimated at approximately 40%.
Recommendation
Given the asset’s borrow-only configuration, conservative user behavior, and rising demand to use RLUSD on Aave, we recommend increasing the supply and borrow caps for RLUSD on the Ethereum Core instance.
Specification
| Instance | Asset | Current Supply Cap | Recommended Supply Cap | Current Borrow Cap | Recommended Borrow Cap |
|---|---|---|---|---|---|
| Ethereum Core | PYUSD | 400,000,000 | 500,000,000 | 240,000,000 | 300,000,000 |
| Ethereum Core | USDtb | 200,000,000 | 300,000,000 | 70,000,000 | 140,000,000 |
| Ethereum Core | RLUSD | 600,000,000 | 750,000,000 | 240,000,000 | 300,000,000 |
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.