Summary
A proposal to:
- Increase wrsETH’s supply cap on the Base instance
- Increase WETH’s supply cap on the Celo instance
- Increase WETH’s supply and borrow caps on the Ethereum Core instance
- Increase weETH’s supply cap on the Ethereum Core instance
- Increase USDT’s supply and borrow caps on the Ethereum Core instance
- Increase USDtb’s borrow cap 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.
wrsETH (Base)
wrsETH has reached 100% supply cap utilization.
Supply Distribution
wrsETH’s supply is highly concentrated, with the top supplier currently holding 99% of the total distribution, which presents a concentration risk. However, since this user is borrowing wstETH, a correlated asset, and is maintaining a healthy health score (1.09), we do not currently consider this a major concern.
Liquidity
Currently, wrsETH’s on-chain liquidity is relatively limited compared to its total supply. At this moment, a 300 wrsETH sell to USDC would incur less than 3% price slippage.
Recommendation
Given user behavior and on-chain liquidity, we recommend increasing wrsETH’s supply cap. However, due to the concentration risk mentioned above, we will propose a conservative increase.
WETH (Celo)
WETH’s supply cap utilization has reached 100%, while its borrow cap utilization stands at 41%.
Supply Distribution
WETH’s supply distribution presents a moderate concentration risk, as the top supplier accounts for approximately 30% of the total. However, since this user has a health score of 1.13 and is actively managing the position, we do not consider this a significant concern at the moment.
The other top suppliers either have no borrowing activity or are maintaining healthy health scores, which significantly reduces the risk of immediate liquidation.
All currently supplied WETH is being used to borrow USDT.
Liquidity
Currently, a 200 WETH sell to USDT would incur less than 4% price slippage, supporting a supply cap increase.
Recommendation
Given user behavior and on-chain liquidity, we recommend increasing WETH’s supply cap.
WETH (Ethereum Core)
WETH has reached 88% utilization for both its supply cap and borrow cap.
Supply Distribution
WETH’s supply distribution is not concentrated, with the top supplier accounting for only around 5% of the total. Additionally, all the top WETH suppliers either have no borrowing activity or maintain high health scores (>1.57), which significantly reduces the risk of immediate liquidation.
The largest borrowed assets against WETH are stablecoins, with USDT accounting for 56% of the distribution and USDC for 32%.
Borrow Distribution
WETH’s borrow distribution presents a moderate level of concentration, with the top borrower holding 28% of the total borrowed amount. However, since this user has collateralized with weETH, a highly correlated asset, we do not consider this to present a meaningful risk.
The remaining top borrowers have all supplied with weETH, wstETH, or osETH, which are all highly correlated with WETH, significantly reducing the risk of liquidation.
The largest collateral asset against WETH is weETH, accounting for 67% of the total distribution. This significantly reduces the likelihood of large-scale liquidations.
Liquidity
WETH’s on-chain liquidity has remained stable over the past three months, supporting a cap increase.
Recommendation
Given user behavior and on-chain liquidity, we recommend increasing both the supply cap and borrow cap for WETH.
weETH (Ethereum Core)
weETH has reached 94% supply cap utilization.
Supply Distribution
The weETH supply distribution is moderately concentrated, with the top supplier accounting for around 30% of the total. However, since this user is currently borrowing WETH, a highly correlated asset, we do not consider this to present significant risk.
The other top suppliers are either borrowing WETH or maintaining high health scores, which significantly reduces the risk of liquidation.
The largest borrowed asset against weETH is WETH, which accounts for 92% of the total distribution. This aligns with the top supplier behavior discussed above.
Liquidity
weETH’s liquidity has remained generally stable over the past three months. Currently, a 13K weETH sell to USDT would incur less than 4% price slippage.
Recommendation
Given user behavior and on-chain liquidity, we recommend increasing weETH’s supply cap.
USDT (Ethereum Core)
USDT has reached 96% supply cap utilization and 83% borrow cap utilization.
Supply Distribution
USDT’s supply distribution presents limited liquidation risk, as 9 out of the top 10 suppliers have no borrowing activity and therefore face no immediate liquidation risk. The only user with an active borrow position currently holds a high health score of 1.43.
Borrow Distribution
USDT’s borrow distribution does not present any concentration risk, with the largest USDT borrower accounting for less than 10% of the total borrowed amount. Additionally, all the top USDT borrowers face limited liquidation risk, as they either maintain high health scores or have collateralized with USDe or PT-sUSDE, both of which are highly correlated with USDT.
The largest collateral assets against USDT are WETH and WBTC, accounting for 23.9% and 20% of the total distribution, respectively.
Liquidity
USDT’s liquidity has remained stable over the past three months, supporting cap increases.
Recommendation
Given user behavior and on-chain liquidity, we recommend increasing both the supply cap and borrow cap for USDT.
USDtb (Ethereum Core)
USDtb has reached 95% borrow cap utilization, while its supply cap utilization stands at 50%.
Borrow Distribution
The borrow distribution of USDtb is moderately concentrated, with the top borrower accounting for 19% of the total. However, given this user currently maintains a healthy health score and is actively managing the position, we do not view this as a major concern at the moment.
The remaining top borrowers all maintain high health scores. The only position with a health score below 1.1 has supplied RLUSD and USDS, both of which are stablecoins like USDtb, significantly reducing the risk of liquidation.
The largest collateral assets against USDtb are WBTC and WETH, accounting for 36% and 20% of the total distribution, respectively.
Liquidity
Currently, a 10M USDtb sell to USDT would incur less than 2% price slippage.
Recommendation
Given user behavior and on-chain liquidity, we recommend increasing USDtb’s borrow cap.
Specification
| Instance | Asset | Current Supply Cap | Recommended Supply Cap | Current Borrow Cap | Recommended Borrow Cap |
|---|---|---|---|---|---|
| Base | wrsETH | 2,400 | 3,000 | - | - |
| Celo | WETH | 500 | 1,000 | 450 | - |
| Ethereum Core | WETH | 3,000,000 | 3,200,00 | 2,700,000 | 2,900,000 |
| Ethereum Core | weETH | 2,100,000 | 2,200,000 | - | - |
| Ethereum Core | USDT | 6,000,000,000 | 6,600,000,000 | 5,700,000,000 | 6,270,000,000 |
| Ethereum Core | USDtb | 200,000,000 | - | 40,000,000 | 80,000,000 |
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