Summary
A proposal to:
- Increase weETH’s supply cap on the Ethereum Core instance.
- Increase rsETH’s supply cap on the Arbitrum instance.
- Increase USDT’s supply cap on the BNB instance.
- Increase USDT’s supply and borrow cap on the Ethereum Core instance.
- Increase USDtb’s supply cap on the Ethereum Core instance.
- Increase wstETH’s borrow cap on the Arbitrum 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.
weETH (Ethereum Core)
weETH has reached 89% supply cap utilization.
Supply Distribution
The supply of weETH is moderately concentrated, with the top supplier accounting for 30% of the total distribution. However, since this user is borrowing WETH, a highly correlated asset, we do not believe it presents a significant concern.
The remaining top suppliers are mostly borrowing WETH, which significantly reduces the risk of liquidation. The only position borrowing USDT currently maintains a healthy score of 1.62, and does not present any immediate liquidation risk.
The largest borrowed asset against weETH is WETH, making up 96% of the total borrowed asset distribution. This aligns with our earlier analysis of top user behavior.
Liquidity
weETH’s on-chain liquidity has remained relatively stable over the past three months, providing sufficient support for a supply cap increase.
Recommendation
Given the user behavior and on-chain liquidity, we recommend increasing weETH’s supply cap. However, given the significant nominal value of the space remaining until the cap is reached, we recommend a marginal increase.
rsETH (Arbitrum)
rsETH has reached 98% supply cap utilization.
Supply Distribution
The supply of rsETH is highly concentrated in a single user, who currently holds 99% of the total distribution. This user is borrowing wstETH, a highly correlated asset, and maintains a relatively high health score of 1.57. As a result, we do not currently see any immediate liquidation risk. However, we will continue to monitor this user’s activity closely and factor in the concentration risk when making our recommendation.
Liquidity
rsETH’s onchain liquidity has been trending downward over the past three months. At present, selling 100 rsETH would result in less than 5% price slippage.
Recommendation
Given current user behavior and available onchain liquidity, we recommend increasing rsETH’s supply cap. However, due to the significant concentration risk and the continued decline in liquidity, we suggest proceeding with a conservative adjustment.
USDT (BNB)
USDT has reached 100% supply cap utilization, while its borrow cap utilization stands at 57%.
Supply Distribution
The supply of USDT is moderately concentrated, with the top supplier holding 26% of the total distribution. However, since this user does not engage in any borrowing activity, it does not pose any immediate liquidation risk.
The remaining top suppliers are either borrowing USDT or USDC, or have no borrowing activity at all, which significantly reduces the likelihood of liquidations.
Liquidity
USDT’s liquidity has remained stable over the past three months. Currently, selling 40M USDT incurs less than 3% price slippage.
Recommendation
Given the safe user behavior and strong on-chain liquidity, we recommend increasing USDT’s supply cap.
USDT (Ethereum)
USDT has reached 92% supply cap utilization, while its borrow cap utilization stands at 78%. The asset show a steady growth both in supply and demand.
Supply Distribution
The supply of USDT is moderately concentrated, with the top supplier holding 34% of the total distribution. However, since this user does not engage in any borrowing activity, it does not pose any immediate liquidation risk. The top wallet represents Huobi’s exchange.
The remaining top suppliers have no borrowing activity at all, which negates the likelihood of liquidations.
Borrow Distribution
The borrow demand for USDT is evenly distributed, with 7 of the top positions adopting highly correlated collateral assets, hence significantly reducing the risk of liquidation. The remaining positions adopt a safe health score and active management
The growing demand for USDT mostly comes from correlated assets like USDe and Ethena PTs, which currently represent over 33% of the collateral used. However the biggest collateral assets used to borrow USDT remain WBTC and WETH.
Recommendation
Given the safe user behavior and strong on-chain liquidity, we recommend increasing USDT’s supply and borrow caps.
USDtb (Ethereum)
USDtb has again quickly reached 100% supply cap utilization, while its borrow cap utilization is at 51% and rising.
Supply Distribution
The supply of USDtb remains highly concentrated, with the top position continuing to account for over 99% of the total supply. This address has previously been identified as related to Ethena’s Coinbase Prime Custody, which currently holds over $1.27B USDtb that has not been deposited in Aave; this is approximately 87% of the total USDtb supply.
As stated in the previous recommendation, this level of concentration can initially appear as a risk. However, the supplier address serves as a reserve, frequently receiving inflows from Ethena’s custody infrastructure, and given the inability to use USDtb as collateral, it does not pose any liquidation risk.
Liquidity
USDtb on-chain liquidity remains stable; however, it is concentrated on Curve with a pool size of $20M, the same value as during our last recommendation. This is sufficient to support an increase in USDtb’s supply cap.
Recommendation
Given the limited risks posed by USDtb as a non-collateral asset, we support a further supply cap increase; it is not necessary to adjust the borrow cap at this time.
wstETH (Arbitrum)
wstETH has reached 100% borrow cap utilization, while its supply cap utilization stands at 47%.
Borrow Distribution
The borrow demand for rsETH is heavily concentrated within one address that detains the majority of wstETH debt. This user uses correlated collateral assets, reducing the risk of liquidation.
The growing demand for wstETH is entirely driven by rsETH, which currently represents the 77% of the collateral used.
Recommendation
Given the safe user behavior and strong on-chain liquidity, we recommend increasing wstETH’s borrow caps.
Specification
| Instance | Asset | Current Supply Cap | Recommended Supply Cap | Current Borrow Cap | Recommended Borrow Cap |
|---|---|---|---|---|---|
| Ethereum Core | weETH | 2,000,000 | 2,100,000 | - | - |
| Arbitrum | rsETH | 3,600 | 3,960 | - | - |
| BNB | USDT | 100,000,000 | 200,000,000 | 90,000,000 | - |
| Ethereum Core | USDT | 5,250,000,000 | 6,000,000,000 | 4,720,000,000 | 5,700,000,000 |
| Ethereum Core | USDtb | 100,000,000 | 200,000,000 | 40,000,000 | - |
| Arbitrum | rsETH | 69,000 | - | 2,366 | 4,732 |
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