Summary
A proposal to:
- Increase the supply cap of PT-sUSDe-5FEB2026 on the Ethereum Core Instance
- Increase the supply cap of syrupUSDT on the Ethereum Core Instance
- Increase the supply cap of ezETH on the Arbitrum Instance
- Increase the supply cap of wrsETH 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-sUSDe-5FEB2026
PT-sUSDe-5FEB2026 has reached its supply cap of 240 million tokens shortly after the previously recommended cap increase, indicating persistent demand to loop the asset with stablecoins on Aave.
Supply Distribution
The supply distribution of PT-sUSDe-5FEB2026 is moderately concentrated: the largest supplier accounts for approximately 23% of the total, while the top five users represent 87% of the market. As shown in the figure below, these users employ PT-sUSDe-5FEB2026 as collateral to recursively borrow stablecoins such as USDe, USDC, and USDT, thereby maximizing leverage and capturing the spread between the underlying yield of the principal token and the interest paid on the associated debt and collateral positions.
Most users are borrowing USDe, likely due to either the higher capital efficiency enabled by E-Mode or lower borrowing costs. Given the close price-wise relation between the principal token of staked USDe and USDe, the risk of liquidation in the market is minimal.
Market & Liquidity
At the time of writing, PT-sUSDe-5FEB2026 has over $43 million in liquidity within the Pendle AMM. The projected slippage on a 40 million PT-sUSDe-5FEB2026 sell order for USDe would be limited to 2.5%, supporting an expansion of the supply caps.
At the same time, the implied yield for the principal token has exhibited minimal volatility, declining by approximately 20 basis points. Given the borrow rate of USDe of 3.70%, the looping strategy still presents itself as highly profitable due to the substantial leverage available and a ~2% spread between the current implied rate of the principal token and borrowing costs of USDe.
Recommendation
Considering the persistent demand to loop PT-sUSDe-5FEB2026, safe user behavior, and significant on-chain liquidity, we recommend expanding the supply cap of the asset on the Ethereum Core instance.
ezETH (Arbitrum)
ezETH has reached 99% of its supply cap on the Arbitrum instance following an inflow of approximately 11 thousand tokens in the past 72 hours.
Supply Distribution
The supply distribution of ezETH is highly concentrated, as the top user represents approximately 50% of the market. ezETH is utilized primarily to borrow WETH recursively; the strategy employed by the users is leveraging the spread between the underlying yield of ezETH and the borrow costs of WETH. The distribution of the health factors in the market follows the expectations for such markets, as users maintain health scores around 1.03-1.05 to balance leverage and risk.
Given the high correlation of the debt and collateral assets, the market currently presents minimal risk.
Liquidity
At the time of writing, slippage on a 100 ezETH to WETH swap is estimated to be less than 6%, allowing for a modest expansion of the supply cap.
Recommendation
Considering the highly constrained risk of liquidations in the market due to the configuration of the oracles, along with the high correlation of the debt and collateral assets, we recommend expanding the supply cap of ezETH on the Arbitrum instance.
wrsETH (Avalanche)
wrsETH has reached its supply cap on the Avalanche instance of Aave V3 following an inflow of over 9.7 thousand tokens in the past 4 days.
Supply Distribution
The wrsETH market is effectively comprised of 2 users, with the top user accounting for approximately 65% of the total. The suppliers are utilizing wrsETH to recursively collateralize WETH borrowing positions to maximize leverage within the restaking strategy, thereby achieving substantial yields.
Given the high correlation of the debt and collateral assets, the probability of liquidations in the market is minimal.
Liquidity
At the time of writing, the majority of wrsETH/WETH liquidity is concentrated in a Blackhole V2 pool, which has a TVL of approximately $800 thousand. The estimated slippage on a 250 wrsETH sell order currently stands at a conservative 2%, allowing for a moderate increase of the supply caps.
Recommendation
Considering the liquidity depth available, conservative user behavior, and overall minimal risk associated with the market, we recommend raising the supply cap of wrsETH on Avalanche.
syrupUSDT (Ethereum Core)
syrupUSDT has reached its supply cap of 100 million tokens following the recent recommendation to double the supply cap, indicating persistent demand to loop the asset on Aave.
Supply Distribution
The supply distribution of syrupUSDT is moderately concentrated as the top supplier represents 36% of the market, while the top 2 account for approximately 70%. As can be observed in the plot below, the asset is utilized in a looping strategy, where users recursively collateralize USDT debt with syrupUSDT, expanding the notional size of the position and earning a leveraged spread between the underlying rate of appreciation of syrupUSDT and USDT borrowing costs.
Given the substantial correlation between the debt and collateral assets, minimal liquidation risk is assumed for the market.
Liquidity
At the time of writing, a sell order of 10 million syrupUSDT would be limited to 0.5% slippage; such liquidity levels substantially constrain the risk of bad debt for the protocol, allowing for a substantial increase in the asset’s supply cap.
Recommendation
Given the safe user behavior, strong correlation between debt and collateral assets, and deep on-chain liquidity, we recommend increasing the supply cap of syrupUSDT.
Specification
| Instance | Asset | Current Supply Cap | Recommended Supply Cap | Current Borrow Cap | Recommended Borrow Cap |
|---|---|---|---|---|---|
| Ethereum Core | PT-sUSDe-5FEB2026 | 240,000,000 | 480,000,000 | - | - |
| Arbitrum | ezETH | 32,000 | 42,000 | - | - |
| Avalanche | wrsETH | 10,000 | 20,000 | - | - |
| Ethereum Core | syrupUSDT | 100,000,000 | 150,000,000 | - | - |
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.