Summary
A proposal to:
- Increase the supply cap of PT-sUSDe-5FEB2026 on the Ethereum instance
- Increase the supply cap of PT-USDe-5FEB2026 on the Ethereum instance
- Increase the supply cap of rsETH on the Arbitrum instance
- Increase the supply cap of syrupUSDT on the Plasma instance
- Increase the supply and borrow caps of WETH on the Arbitrum instance
- Increase the supply and borrow caps of EURC on the Avalanche 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.
PT-USDe-5FEB2026 & PT-sUSDe-5FEB2026 (Ethereum Core)
Both February-maturity PTs have been filled within 24 hours since listing on the Ethereum Core instance, indicating substantial demand to loop the assets on Aave.
Supply Distribution
The supply distributions of the assets are similar, as the top suppliers in each respective market account for over 95% of supply, specifically:
- user accounts for over 97% of PT-sUSDe-5FEB2026 supply
- user accounts for over 99% of PT-USDe-5FEB2026 supply
In both cases, the suppliers are using the PTs in looping strategies. By supplying appreciating collateral and borrowing USDe, which is further converted into the collateral asset via Pendle, the users are effectively leveraging the spread between the rate of appreciation of the underlying asset and the borrowing costs of stablecoins (USDe in this case). The high concentration of suppliers in both markets can be attributed to the restricting supply caps, as the top users have taken up the full capacities of the supply caps; therefore, it’s reasonable to assume that additional outstanding demand is in place.
Liquidity
The PT-sUSDe has substantial liquidity with conservative slippage facilitated via Pendle AMM, specifically a sell order of 6 million PT-sUSDe for USDe can be executed at 2% slippage.
However the PT-USDe liquidity remains highly limited with a swap of approximately 500 thousand PT-USDe currently causing 1.5% price impact.
The combination of high correlation of the debt and collateral assets, which reduces the risk of liquidations, along with the on-chain liquidity, allows for the expansion of the supply caps of the newly listed PTs.
Recommendation
Considering the on-chain liquidity, safe user behavior, and outstanding demand to loop the assets, we recommend increasing the supply caps of PT-sUSDe-5FEB2026 and PT-USDe-5FEB2026 on the Ethereum Core instance.
rsETH (Arbitrum)
rsETH has reached its supply cap at 60 thousand tokens, following an inflow of over 23 thousand tokens over the last 8 days, indicating demand to use the asset as collateral.
Supply Distribution
The supply distribution of rsETH is highly concentrated, as the top user represents approximately 67% of the total supply, while the top 2 users account for more than 85%. As can be observed in the positions plot below, the users are utilizing the asset in leveraged staking and restaking strategies. By recursively supplying rsETH as collateral and borrowing either WETH or wstETH, the users are leveraging the spread between the underlying rate of growth of the collateral asset and borrowing costs.
Approximately 92% of all debt positions backed by rsETH are denominated in WETH, with wstETH representing an additional 7.5%. Given the high correlation between these assets, liquidation risk in the market is minimal.
Market and Liquidity
The rsETH liquidity on Arbitrum has undergone a substantial change. Previously, the main liquidity hub on the chain was the Balancer V2 rsETH/WETH pool, which provided efficient pricing of the assets within the network. However, following the Balancer V2 hack in early November, the protocol lost most of its TVL in V2 pools, and the main liquidity venue shifted to Curve. As can be observed, the peg stability within the market has remained high, especially during highly volatile market periods, such as October 10.
Since liquidity has shifted to Curve, market efficiency has remained consistent, as price dislocations before and after the Balancer hack are approximately uniform with similar levels of maximum and average dislocation sizes.
Given that debt positions collateralized by rsETH are almost exclusively denominated in WETH, and the market has functioned efficiently during some of the most volatile periods in recent history, we believe that current liquidity constraints pose limited risk due to high market efficiency in pricing rsETH on Arbitrum.
Recommendation
While the liquidity profile of the instance has shifted substantially after the Balancer V2 exploit, rsETH is predominantly used to borrow highly correlated assets, namely WETH and wstETH, which, given high market efficiency in pricing of the asset relative to the peg and conservative user behavior, allow for the expansion of the asset’s supply cap without increasing the risk exposure of the instance.
WETH (Arbitrum)
WETH has reached its supply and borrow caps on the Arbitrum instance following an increase in borrowing and lending activity since November 10th.
Supply Distribution
The supply distribution of WETH exhibits minimal concentration risk, as the top user accounts for approximately 11% of the total, while the top 72 users have a cumulative share of 44%. The majority of users have minimal debt posted against their WETH collateral, substantially reducing the risk of large-scale liquidations.
Only a minority of WETH suppliers have any debt against the asset, with borrowing primarily concentrated in stablecoins, which represent approximately 90% of all debt. Given the safe health factors of the positions, the market currently presents minimal risk.
Borrow Distribution
As in other WETH markets, borrowing is primarily facilitated through LST/LRT assets. The distribution of borrowers is more concentrated than that of suppliers, as the top user accounts for over 20% of all debt, while the top 5 wallets represent 60% of borrowing. The distribution of health factors is typical for WETH borrowing positions. Since users are utilizing ETH-correlated E-modes and maximizing leverage, health factors are centered around 1.02. While such levels typically present a risk, the high correlation between debt and collateral minimizes the probability of liquidations.
The majority of WETH debt is backed by LRTs, with weETH and rsETH accounting for over 85% of all posted collateral. Given the high correlation of the assets, the liquidation risk is minimal.
Liquidity
At the time of writing, a sell order of 700 weETH for WETH would incur 1.5% slippage, while a swap of 200 rsETH would result in 2% slippage. While current liquidity levels would not support uncorrelated debt, the existing configuration of WETH borrowing substantially reduces liquidation risk.
Recommendation
Given the rising demand to lend and borrow WETH on Arbitrum, combined with safe user behavior and predominantly correlated borrowing, we recommend increasing the supply and borrow caps for this asset.
EURC (Avalanche)
EURC on the Avalanche instance has reached 98% supply cap utilization and 9% borrow cap utilization, indicating substantial demand for both borrowing and lending.
Supply Distribution
The supply distribution shows low concentration, with the top 11 users accounting for less than 45% of the total supply. The health factor distribution is also safe, as the overwhelming majority of users have no borrow positions in place, minimizing the risk of liquidations.
As noted earlier, only a small portion of users are borrowing against their supplied EURC. However, some debt accumulation is present, primarily in stablecoins such as EURC, USDT, and USDC. Since both collateral and debt assets are stablecoins, the risk of liquidations in the market is constrained.
Borrow Distribution
Akin to supply, the borrow distribution exhibits minimal concentration as the top borrower represents approximately 10% of the market, while the top 10 wallets have a cumulative share of 43%. The health scores associated with the top positions are in a broad and low risk range, a subset of users collateralize EURC debt with stablecoins with health scores of approximately 1.06, while others use volatile assets to borrow the token and exhibit health scores in the 1.3 - 1.87 range.
As mentioned, the majority of EURC debt is collateralized by stablecoins — representing approximately 50% of all collateral posted, while assets like BTC.b, WETH.e and wAVAX account for 38% of EURC debt backing. Considering the safe distribution of health factors the market currently presents minimal liquidation risk.
Liquidity
At the time of writing, the on-chain liquidity of EURC on Avalanche is sufficient to execute a sell order of 1 million EURC for USDT at 4% slippage, supporting an expansion of both supply and borrow caps.
Recommendation
Given the safe user behavior, substantial on-chain liquidity, and persistent demand to both borrow and lend EURC, we recommend increasing both the supply and borrow caps for the asset on the Avalanche instance.
syrupUSDT (Plasma)
On Plasma, syrupUSDT’s supply cap utilization has reached 100%, hitting the 300M cap.
Supply Distribution
The syrupUSDT distribution presents concentration risk, as the top supplier accounts for 97% of the total. The user’s current health score stands at 1.08; however, given that the user is borrowing USDT0, another highly correlated asset, we believe the liquidation risk remains limited. In addition, all remaining positions are also borrowing USDT0 to engage in leverage looping, further reducing liquidation risk.
Liquidity
Currently, the majority of syrupUSDT liquidity is concentrated on Fluid, which can support a $10M swap with under 1% slippage, reinforcing the case for a supply cap increase.
Recommendation
Considering the persistent demand to collateralize correlated debt positions with syrupUSDT, the safe user behavior, and the substantial on-chain liquidity, we recommend increasing the syrupUSDT supply cap on the Plasma instance. Additionally, it is crucial to mention that Maple’s recent public communications clarify that the CORE BTC pilot losses are limited to a segregated vehicle and do not affect the risk profile of the syrupUSDT (or syrupUSDC) vaults used on Aave.
Specification
| Instance | Asset | Current Supply Cap | Recommended Supply Cap | Current Borrow Cap | Recommended Borrow Cap |
|---|---|---|---|---|---|
| Ethereum Core | PT-sUSDe-5FEB2026 | 30,000,000 | 60,000,000 | - | - |
| Ethereum Core | PT-USDe-5FEB2026 | 30,000,000 | 60,000,000 | - | - |
| Arbitrum | rsETH | 60,000 | 90,000 | - | - |
| Plasma | syrupUSDT | 300,000,000 | 400,000,000 | - | - |
| Arbitrum | WETH | 170,000 | 240,000 | 153,000 | 215,000 |
| Avalanche | EURC | 6,000,000 | 12,000,000 | 5,600,000 | 11,200,000 |
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.