Summary
A proposal to:
- Increase weETH supply cap on the Linea instance.
- Increase ezETH supply cap on the Linea instance.
- Increase WETH supply and borrow cap on the Linea instance.
- Increase wrsETH supply cap on the Base instance.
- Increase USDT supply and borrow cap on the Celo instance.
- Increase PT-USDe-JULY supply cap on Ethereum Core
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 (Linea)
weETH has reached its maximum supply cap of 1,000.
Supply Distribution
The supply is highly concentrated with the top user accounting for over 57% of the total, resulting in a high concentration risk. Despite the suppliers health score being mostly in the 1.02 - 1.2 range, the fact that they mostly borrow WETH, reduces the liquidation risk because the debt and collateral prices are closely correlated.
The majority of borrowed assets is WETH, facilitated by a weETH E-mode, which enables moderate risk parameters and higher capital efficiency.
Liquidity
Liquidity profile for the weETH/WETH pair on Linea has been stable and can absorb a sell order of 350 weETH with 1% slippage, supporting a cap increase.
ezETH (Linea)
ezETH has reached its supply cap at 1,200 ezETH.
The supply has been steadily increasing and reached the cap on the 26th of June.
Supply Distribution
Supply concentration is moderate: the top 6 wallets account for 86% of the total supply, with health scores clustered around 1.05. The majority of the assets borrowed against the ezETH are WETH, which limits the liquidation risk due to the tight correlation of asset prices.
WETH has been an overwhelmingly dominant debt asset against ezETH collateral accounting for over 94% of debt distribution. This can be attributed to the ezETH E-Mode, which allows to increase capital efficiency for WETH borrowers due to the assets’ prices being highly correlated.
Liquidity
Available liquidity for ezETH/WETH pair is sufficient to liquidate 25% of supply at a moderate 2% slippage, given the high correlation of the assets, this liquidity profile supports a cap increase. Additionally, the tight correlation between debt and collateral in this pair reduces liquidation risks.
WETH (Linea)
WETH supply on Linea has reached 98% at 2,350 WETH with moderately high borrow utilization at 73%.
Both supply and borrow quantities have been growing steadily in recent months, while staying below UOptimal. As the utilization is at 68% and the total supply is limited, the market can benefit from an additional supply cap increase.
Supply Distribution
The supply is very well distributed, with the top 156 wallets only accounting for 40% of the supply. Most of the top borrowers have a high health factor from 1.48 to 3, with an exception of the top 1 supplier, whose health score is at 1.12. Most of the top suppliers are borrowing USDC and USDT, posing a moderate liquidation risk in case of an adverse price movement.
Overall, the majority of debt against the WETH collateral is in stablecoins, with USDC and USDT having a 97% market dominance, posing moderate liquidation risks.
Borrow Distribution
The borrow side of the WETH market is a lot more concentrated compared to supply: top 3 users are responsible for 65% of total borrows. Additionally the average health of top borrowers is in the 1.02 - 1.11 range. The collateral (weETH and ezETH) is tightly correlated to the debt asset consequently reducing the liquidation and bad debt risks.
The overwhelming majority of collateral posted against WETH is facilitated by three distinct E-Modes. As the collateral is WETH correlated the risk of liquidations is significantly reduced.
Liquidity
The liquidity profile for WETH/USDC pair on Linea has been stable since the middle of May and can facilitate a sell order of 275 WETH at a 1% slippage, which could effectively liquidate a significant portion of the stablecoin debt against WETH collateral.
wrsETH (Base)
wrsETH reached 100% supply cap utilization at 1.2K tokens.
While its supply has shrunk significantly on June 23rd. After a 10 day pause it has been swiftly restored to maximum supply.
Supply Distribution
The supply of wrsETH is highly concentrated, with the top supplier accounting for over 99.3% of the total, which introduces a high concentration risk. The account, however, has borrowed wstETH, a closely correlated asset, and holds a marginal health score of 1.05. Although the health factor is low, the strong alignment between wrsETH’s and wstETH’s prices keeps the liquidation risk relatively constrained.
The general debt market is effectively only wstETH facilitated by the wrsETH/wstETH ****E-Mode. Which significantly limits liquidation risk as the debt’s and collateral’s prices move in unison.
Liquidity
Liquidity in the wrsETH/wstETH pair on Base has been highly volatile. That said, the liquidity pool’s depth still surpasses total deposited supply of wrsETH, indicating that the market can comfortably absorb significant liquidations.
USDT(Celo)
USDT on Celo has reached max supply at 6M USDT.
As the supply has reached the ceiling borrowing is still low at only $470K and a utilization rate of 7.81%, which suggests further price discovery can be facilitated by increasing the supply caps.
Supply Distribution
Supply is moderately concentrated: the top five suppliers provide roughly 48% of total liquidity. The three largest suppliers (about 37%) have excellent health scores and present no liquidation risk. It’s important to outline that a small number of users show marginal health factors between 1.00 and 1.03, given that their borrowings are in stablecoins (USDT, USDC), the liquidation risk is also minimal.
Additionally, the majority of assets borrowed against USDT collateral are stablecoins (USDC, cUSD, USDT) with only ~15% being uncorrelated assets: cEUR, WETH, and CELO. Limiting potential liquidation volumes.
Borrow Distribution
The borrow distribution currently presents limited risk, as lower health positions borrow USDT against other stablecoins, primarily USDT itself and USDC. Although other positions are collateralized by volatile assets, they exhibit a safer risk profile with higher health factors (1.21 - 2.41).
The majority of the collateral posted against USD₮ debt is split between stablecoins (USDT, USDC), and volatile assets (WETH, CELO) with respective shares of 53% and 47%. Overall, the borrowing of USDT is limited with current utilization at ~7-8%.
PT-USDe (Ethereum Core)
PT-USDe-31JUL2025 had reached its supply cap at $200M on July 4th.
Supply Distribution
The supply concentration is moderately high, with the top 5 suppliers accounting for ~77% of the total.
All of the collateral is used to borrow highly correlated assets with 50% USDe ($90M) and the rest being split between USDT ($84M), USDC ($3.25M), USDS ($1.5M) facilitated by USDe and Stablecoin E-Modes.
Liquidity
While current AMM liquidity on Pendle can only facilitate a liquidation of 4M USDe, the risks associated with liquidations are also limited due to high maturity of the PT and its convergence to underlying (USDe).
Duration Risk
As the PT-USDe is approaching maturity, the risk is being constrained. At 23 days to maturity the duration risk is minimal. Even a 10 percent surge in yield would decrease the PT’s price by at most 0.6%. As duration has been reduced, the volume of positions liquidatable at the highest potential yield has fallen from $15M to $8M, significantly reducing liquidity concerns.
The implied APY has been fairly stable at 7.8%, with short directional jumps being in the ± 0.5% magnitude range.
Recommendation
Based on the observed user behavior and current on-chain liquidity conditions, we recommend raising the supply caps for wrsETH on the Base instance, USD₮ on Celo, and PT-USDe on Ethereum Core.
Specification
| Instance | Asset | Current Supply Cap | Recommended Supply Cap | Current Borrow Cap | Recommended Borrow Cap |
|---|---|---|---|---|---|
| Linea | weETH | 1,000 | 2,000 | - | - |
| Linea | ezETH | 1,200 | 2,400 | - | - |
| Linea | WETH | 2,400 | 4,800 | 2,200 | 4.400 |
| Base | wrsETH | 1,200 | 2,400 | - | - |
| Celo | USDT | 6,000,000 | 12,000,000 | 1,800,000 | 3,600,000 |
| Ethereum Core | PT-USDe | 200,000,000 | 250,000,000 | - | - |
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 recommendation.
Copyright
Copyright and related rights waived via CC0