Summary
A proposal to:
- Increase wstETH’s supply cap on the Gnosis instance.
- Increase wstETH’s supply and borrow caps on the Base instance.
- Increase wstETH’s supply cap on the Ethereum Core instance.
- Increase USDC.e’s supply cap on the Sonic instance.
- Increase WETH’s supply and borrow caps on the Sonic instance.
All 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.
wstETH (Gnosis)
wstETH’s supply cap utilization has reached 92%, while its borrow cap utilization stands at 1%.
Supply Distribution
The supply of wstETH shows moderate concentration, with the top supplier holding 25% of the total distribution. However, as this supplier currently has no active borrowing positions, it poses no liquidation risk at this time.
The remaining top suppliers either have no borrowing activity or maintain a high health score. The only position currently with a health score near 1 is borrowing WETH, which is highly correlated with wstETH.
The largest borrowed asset against wstETH is WETH, accounting for 53% of the total distribution, significantly reducing the likelihood of large-scale liquidations.
Liquidity
wstETH’s liquidity has remained relatively limited over the past three months. While we do not believe this poses a significant concern given observed user behavior, we recommend a conservative supply cap increase that takes this into account.
Recommendation
Given user behavior and on-chain liquidity, we recommend increasing the supply cap to 10.8K wstETH.
wstETH (Base)
wstETH’s supply cap utilization currently stands at 72%, while its borrow cap utilization has reached 100%.
Supply Distribution
The supply distribution of wstETH presents limited liquidation risk. Most top suppliers are either borrowing WETH or have no borrowing activity, significantly reducing immediate liquidation concerns. The only two positions borrowing USDC maintain very high health scores, further minimizing liquidation risk.
Borrow Distribution
The borrow distribution of wstETH currently presents minimal risk. All top borrowers have collateralized assets that are highly correlated with wstETH, such as WETH, weETH, or ezETH, significantly reducing liquidation risk.
The top collateral assets against wstETH align with our earlier analysis of top borrower behavior. WETH, weETH, and ezETH are the three largest collateral assets against wstETH, collectively accounting for 92% of the total distribution.
Liquidity
wstETH’s liquidity has experienced some fluctuations, with a current 800 wstETH sell incurring less than 1% slippage. However, based on user behavior, we do not believe these fluctuations present significant concerns.
Recommendation
Based on user behavior and on-chain liquidity, we recommend doubling both the supply cap and the borrow cap.
wstETH (Ethereum-Core)
wstETH’s supply cap utilization has reached 92%, while its borrow cap utilization stands at 67%.
Supply Distribution
wstETH’s supply is well-distributed, with the top supplier holding approximately 10% of the total. The overall distribution presents limited risk, as most top suppliers are either borrowing WETH or have no borrowing activity. The remaining three suppliers borrowing stablecoins or BTC also maintain high health scores, further reducing liquidation risk.
The largest borrowed asset against wstETH is WETH, accounting for 56% of the total, which significantly reduces the likelihood of large-scale liquidations.
Liquidity
wstETH’s on-chain liquidity has experienced fluctuations in accordance with ETH price volatility but remained generally stable over the past three months.
Recommendation
Given the user behavior and liquidity, we recommend increasing the supply cap to 1.76M wstETH.
USDC.e (Sonic)
USDC.e has reached 91% supply cap utilization and 39% borrow cap utilization.
Supply Distribution
USDC.e’s supply distribution presents limited liquidation risk. Among the 10 suppliers, 8 have no borrowing activity or are borrowing USDC.e itself, posing no immediate liquidation risk. The remaining two top positions maintain health scores above 1.2 and appear to be actively managing their positions, further reducing the risk of liquidation.
Recommendation
Given the current liquidity and user behavior, we recommend increasing the supply cap to 430M.
WETH (Sonic)
WETH’s supply cap utilization has reached 88% and its borrow cap utilization has reached 87%.
Supply Distribution
The supply distribution of WETH shows a minor level of concentration, with the top supplier accounting for 18% of the total. However, this position maintains a strong health score of 1.63 and appears to be actively managed, mitigating any immediate risk concerns.
The remaining top suppliers either maintain a high health score or have no borrowing activity, significantly reducing liquidation risks.
The largest borrowed asset against WETH is USDC.e, accounting for 88% of the total borrowed distribution.
Borrow Distribution
The borrow distribution of WETH presents limited concerns at this time. Although most top borrowers are using USDC.e as collateral to borrow WETH, all positions currently maintain relatively high health scores above 1.13, mitigating liquidation risk.
Recommendation
Given user behavior and on-chain liquidity, we recommend increasing the supply cap to 30K and borrow cap to 26.4K.
Specification
| Instance | Asset | Current Supply Cap | Recommended Supply Cap | Current Borrow Cap | Recommended Borrow Cap |
|---|---|---|---|---|---|
| Gnosis | wstETH | 9,000 | 10,800 | 400 | - |
| Base | wstETH | 18,000 | 36,000 | 10,400 | 20,800 |
| Ethereum Core | wstETH | 1,600,000 | 1,760,000 | 480,000 | - |
| Sonic | USDC.e | 400,000,000 | 430,000,000 | 110,000,000 | - |
| Sonic | WETH | 25,000 | 30,000 | 22,000 | 26,400 |
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 AGRS recommendation.
Copyright
Copyright and related rights waived via CC0