Summary
A proposal to:
- Increase supply cap for PT-sUSDE-27NOV2025 on the Ethereum Core instance.
- Increase supply and borrow caps for USDT on the Linea 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.
Our recent research paper, “Stress Testing Ethena: A Quantitative Look at Protocol Stability,” examines how rapidly growing deposits of Ethena’s USDe, sUSDe and especially Pendle Principal Tokens are reshaping Aave’s collateral pool and funding dynamics. It maps out both on‑chain liquidity hazards (e.g., thin PT markets, leveraged looping, rehypothecation) and backing‑side tail risks (exchange or custodian failure, collateral de‑peg, prolonged negative funding) via scenario modeling and Monte‑Carlo simulations, while proving that Aave’s current risk‑oracle floors, eMode parameterization and liquidation controls would absorb most plausible shocks. The proposed cap increases reflect and incorporate the insights from this paper.
Finally, our most recent paper, “Aave’s Growing Exposure to Ethena: Risk Implications Throughout the Growth and Contraction Cycles of USDe ,” shows that contraction and stabilization dynamics within the Aave-Ethena ecosystem are closely linked. When sUSDe yields decline, leveraged positions unwind, freeing up significant stablecoin liquidity in Aave through repayments. Simultaneously, PT/USDe borrowers shift their debt into other stablecoins, generating upward price pressure on USDe precisely when redemption demand rises. Crucially, stablecoin repayments from leverage unwinders typically outweigh PT debt migration into stablecoins, creating a natural liquidity buffer. Our analysis indicates this dynamic effectively stabilizes Aave markets, comfortably absorbing potential stress even during Ethena’s withdrawal of backing assets. Overall, the current market structure supports increased exposure, provided backing deployment into Aave remains prudently managed. The proposed cap increases reflect and incorporate the insights from the aforementioned papers.
For more insight into how the PT Risk Oracle operates, please consult the following post and its follow up. In addition, the Risk Oracles outputs can be monitored live at the following page.
PT-sUSDE-27NOV2025 (Ethereum Core)
PT-sUSDE-27NOV2025 has reached its full supply cap of 75M, with an inflow of 20M on September 6 alone, highlighting strong user demand.
Supply Distribution
The supply distribution of PT-sUSDE-27NOV2025 is moderately concentrated, with the top supplier accounting for around 20% of the total. However, since this user is borrowing USDT, the risk of liquidation is considered low. In addition, all other top suppliers are also borrowing stablecoins, which further reduces the likelihood of liquidations.
The distribution of borrowed assets aligns with our analysis of top suppliers, with USDT as the largest borrowed asset, followed by USDC and USDe. Due to the high correlation between debt and collateral prices, liquidation risk remains minimal.
Liquidity and Market
Liquidity in the Pendle AMM has increased since our last review and currently supports swaps of up to $27M with less than 3% slippage.
PT-sUSDE-27NOV2025’s SY liquidity in the AMM has also grown significantly since our last review, reaching $25M as of this writing.
The implied yield has remained fairly stable over the past week, ranging between 8.5% and 9.5% with limited fluctuations.
Recommendation
Given the strong user demand, prudent user behavior, significant AMM liquidity growth, and stable implied yield, we recommend doubling PT-sUSDE-27NOV2025’s supply cap.
USDT (Linea)
USDT has reached 100% supply cap utilization and 94% borrow cap utilization. This strong growth further reinforces the rapid growth trend in the Linea Market that we highlighted in our cap recommendation post on Sep 4th.
Also, the behavior of USDT’s top suppliers and borrowers presents very limited liquidation risk. Most USDT used as collateral is staked to borrow USDC, accounting for 89% of total borrowed assets. Conversely, the largest collateral backing borrowed USDT is also USDC, representing 73% of the total. This highly correlated collateral–debt relationship significantly reduces liquidation risk, allowing for more permissive adjustments to supply and borrow caps.
Recommendation
In light of the significant supply and borrow demand and safe user behavior, we recommend doubling the supply and borrow caps for USDT to facilitate further growth of the instance.
Specification
| Instance | Asset | Current Supply Cap | Recommended Supply Cap | Current Borrow Cap | Recommended Borrow Cap |
|---|---|---|---|---|---|
| Ethereum Core | PT-sUSDE-27NOV2025 | 75,000,000 | 150,000,000 | - | - |
| Linea | USDT | 128,000,000 | 256,000,000 | 115,200,000 | 230,400,000 |
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.