Summary
A proposal to:
- Increase the supply and borrow caps of USDT0 on the Mantle Instance
- Increase the supply and borrow caps of USDC on the Mantle Instance
- Increase the supply cap of wrsETH on the Mantle Instance
- Increase the debt ceiling of XAUt 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.
USDT0 (Mantle)
USDT has reached its supply cap of 200 million tokens on the Mantle instance following an inflow of approximately 100 million in the past 72 hours.
Supply Distribution
The supply distribution of USDT0 is highly concentrated, as the top user accounts for 60% of the market. While such concentration levels are typically considered risky, USDT0 is configured as a borrow-only asset, implying a lack of collateral utility. Hence, concentration risk is primarily manifested in potential interest rate volatility if the top supplier were to decrease its position.
Borrow Distribution
USDT0 borrowing exhibits a substantially lower level of concentration as compared to the supply, specifically, the top 3 users account for less than 50% of total debt. The majority of the borrowing originated from leveraged looping strategies where people are either participating in Ethena’s “Liquid Leverage” or looping syrupUSDT. As the collateral is tightly correlated to the debt and the positions’ health factors are fairly conservative, the market presents minimal liquidity risk.
Recommendation
Given the elevated demand to lend and borrow USDT0 on the Mantle instance, along with low-risk borrowing behavior, we recommend increasing the asset’s supply and borrowing caps.
USDC (Mantle)
USDC has reached its supply cap on the Mantle instance; the flow of deposits is primarily attributable to the substantial incentives present in the market, which manifest in a supply rate that currently exceeds 10%.
Supply Distribution
USDC supply exhibits moderate concentration as the top position represents approximately 35% of the market. As USDC is configured as a non-collateral borrowable asset, no liquidation risk can be attributed to the supply side of the market.
Borrow Distribution
USDC borrowing is currently at 30% utilization, with three wallets driving 90% of the debt accumulation. As can be observed, USDC debt is primarily collateralized by syrupUSDT collateral, which, given the high correlation of the assets, presents minimal liquidation risk.
Recommendation
Considering the increased demand associated with the supply side of the USDC market, along with increasing borrowing dynamics and minimal associated risk, we recommend increasing the supply and borrow caps of the asset on the Mantle instance.
wrsETH (Mantle)
wrsETH has reached its supply cap of 12,000 tokens on the Mantle instance. Demand is primarily driven by relatively low WETH borrowing rates, currently at 1.13%.
Supply Distribution
The supply of wrsETH is highly concentrated as the market is effectively represented by three users. The suppliers collateralize WETH debt with wrsETH, increasing the notional exposure to capture a larger net spread between wrsETH’s appreciation rate and WETH’s borrowing costs.
Liquidity
wrsETH liquidity is currently concentrated in a wrsETH-WETH Merchant Moe pool with a TVL of approximately $2.3 million, supporting meaningful unwinds if the market conditions deviate.
Recommendation
Given the persistent demand to utilize wrsETH in leveraged restaking strategies, limited liquidation risk, and ample liquidity, we recommend increasing the supply cap of wrsETH.
XAUt (Ethereum Core)
XAUt has reached 84% of its debt ceiling on the Ethereum Core instance of Aave, indicating substantial demand to utilize the asset as collateral. Specifically, over 8,000 tokens have been deposited in the protocol in the past 30 days, amounting to approximately $40 million.
Supply Distribution
XAUt is used primarily to collateralize stablecoin debt. The suppliers are fairly conservative, with health factors ranging from 1.54 to 1.95, presenting limited liquidation risk. The asset is configured as collateral strictly in the isolation mode, limiting the accumulation of high volatility debt.
Liquidity
At the time of writing, a sell order of 1,000 XAUt for USDe is subject to conservative 3.6% slippage, supporting a meaningful increase in the debt ceiling.
Recommendation
Considering the growing demand to utilize the asset as collateral to borrow stablecoins, along with minimal risk associated with both the asset and current positions, we recommend increasing the debt ceiling to 70 million. As the Risk Steward allows for a maximum increase of 20%, we recommend conducting two subsequent increases to reach the desired target debt ceiling.
Specification
| Instance | Asset | Current Supply Cap | Recommended Supply Cap | Current Borrow Cap | Recommended Borrow Cap |
|---|---|---|---|---|---|
| Mantle | USDT0 | 200,000,000 | 400,000,000 | 190,000,000 | 380,000,000 |
| Mantle | USDC | 20,000,000 | 40,000,000 | 19,000,000 | 38,000,000 |
| Mantle | wrsETH | 12,000 | 24,000 | - | - |
| Instance | Asset | Current Debt Ceiling | Recommended Debt Ceiling |
|---|---|---|---|
| Ethereum Core | XAUt | 50,000,000 | 70,000,000 |
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.