Summary
This proposal recommends reducing the USDtb supply and borrow caps on Ethereum Core to limit exposure while the proposed USDtb oracle update is finalized. It also proposes adjusting USDC and GHO interest rate parameters on Base following the conclusion of the incentive campaign, as markets transition toward organic demand. The updated target borrow rates aim to maintain a competitive and sustainable landscape across Aave v3 instances while supporting long-term market stability.
Additionally, we propose to:
- Increase the supply cap of PT-USDe-5FEB2026 on the Ethereum Core Instance
- Reduce the supply cap of PT-sUSDe-15JAN2026 on the Plasma Instance
- Reduce the supply cap of PT-USDe-15JAN2026 on the Plasma Instance
- Increase the supply cap of EURC 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.
USDtb (Ethereum Core)
Following the recent Direct-to-AIP regarding the USDtb oracle adjustment, USDtb on the Ethereum Core instance is expected to be anchored to USD. The AIP was prompted by significant intraday price volatility in USDtb, which traded as low as $0.97 and as high as $1.01 within a single day. While these secondary-market prices largely reflected order flow and liquidity conditions, oracle price updates introduced material protocol risk, as borrowed USDtb positions temporarily increased in value, triggering liquidations.
To mitigate the risk of similar events in the future, the proposal introduces a pricing mechanism that anchors USDtb debt to USD. However, until this oracle configuration is fully implemented, Chaos Labs recommends contracting both the supply and borrow caps of USDtb. This interim measure limits aggregate user exposure to USDtb debt and constrains potential risk. Specifically, we recommend setting the supply cap of USDtb to 200 million tokens and the borrow cap to 70 million.
GHO & USDC (Base)
The GHO and USDC on the Base instance have operated under an incentive-driven regime since the launch of the Base Incentive Campaign, which introduced borrow-side rewards for both stablecoins to accelerate early adoption and boost borrowing demand. During this period, interest rate parameters were intentionally tuned to accommodate discounted borrowing costs. The incentive campaign was explicitly designed as a temporary measure, with a six-month duration. As the campaign concludes, the Base markets are transitioning from subsidized demand toward a more organic regime. This shift fundamentally changes the behavior of both borrowers and suppliers. Borrow demand that was previously supported by incentives is expected to decline under current costs. Without an adjustment of the interest rate parameters, the conclusion of incentives risks compressing the utilization, reducing supplier participation, and increasing the likelihood of liquidity migration.
Chaos Labs recommends targeting borrow rates of 5% and 5.5% for USDC and GHO on Base. This target is consistent with the prevailing target borrow rates for major stablecoins such as USDC and USDT on the Ethereum Core instance. Anchoring Base stablecoin markets to this level helps ensure continuity, reduces the risk of demand imbalances, and supports long-term Base instance market health.
PT-USDe-5FEB2026 (Ethereum Core)
PT-USDe-5FEB2026 has reached its supply cap at 240 million tokens following an inflow of approximately 40 million since the 21st of January, indicating elevated demand to loop the asset on the Ethereum Core instance.
Supply Distribution
The supply of PT-USDe-5FEB2026 is highly concentrated as the market effectively consists of four positions. As can be observed, users are using PT-USDe-5FEB2026 to collateralize USDT and USDe debt, thereby increasing net exposure to the spread differential between the underlying yield of the principal token and stablecoin borrowing costs. As is typical for such markets, the distribution of health factors is clustered around 1.02, which, given the high correlation of the debt and collateral prices, implies minimal risk of liquidation.
Liquidity
At the time of writing, Pendle AMM projects a sub-5-basis-point slippage on a 1,000,000 principal tokens sell order. Given the high maturity of the market, the potential volatility in the implied rate is projected to have a highly discounted impact on the price of the token. Additionally, as the market matures in 9 days and users will be able to redeem the principal tokens one-to-one for the underlying USDe, the risk associated with the market is minimal.
Recommendation
Given the increasing demand for PT-USDe-5FEB2026 and the substantially reduced risk implied by its short expiry, we recommend increasing the supply cap for PT-USDe-5FEB2026 on the Ethereum Core instance.
EURC (Ethereum Core)
EURC has reached 95% of its 70 million supply cap, with a slightly suboptimal borrow utilization rate of 77%, indicating growing demand to lend the asset on Aave.
Supply Distribution
The supply of EURC is moderately concentrated, with the top user accounting for roughly 37% of the market, and the top seven accounting for approximately 70%. As can be observed below, the distribution of health factors is in a broad 1.04-1.64 range. Given that suppliers are primarily borrowing stablecoins, the market’s liquidation risk is substantially constrained.
As mentioned previously, EURC suppliers are primarily collateralizing stablecoin debt. Specifically, PYUSD, USDe, USDC, and USDT account for 95% of all borrowed assets, substantially reducing the risk of liquidations given the moderate correlation between the debt and collateral assets.
Borrow Distribution
The borrow distribution of EURC exhibits lower levels of concentration as compared to the supply side; specifically, the top user represents 24% of the market while the top thirteen wallets have a cumulative share of 69%. Additionally, the distribution of health factors is significantly higher, which is explained by the prevalence of volatile assets in the collateral pool; the health scores are primarily in the 1.49-3.12 range.
While PYUSD is the largest collateral asset for EURC debt, volatile assets account for the majority of collateral backing the borrowing positions; specifically, WBTC, WETH, cbBTC, wstETH, and LINK account for 63% of all collateral posted.
Liquidity
At the time of writing, a sell order of 4 million EUR for USDT is limited to a conservative 4.78% slippage, which, given the high correlation between debt and EURC-collateral prices, allows for a moderate expansion of the supply and borrow caps.
Recommendation
Given the increased demand to supply and borrow EURC, along with substantial on-chain liquidity and safe user behavior, we recommend increasing the supply and borrow caps for the asset on the Ethereum Core instance.
PT-USDe-15JAN2026 & PT-sUSDe-15JAN2026 (Plasma)
Given that the January Ethena principal tokens have recently matured, we recommend formally off-boarding the assets from the instance by setting their supply caps to the minimum value of one. This measure will prevent any new collateral from being added and facilitate the orderly wind-down of remaining positions, simplifying risk management for these expired markets, without triggering liquidations for existing users.
Specification
| Instance | Asset | Current Supply Cap | Recommended Supply Cap | Current Borrow Cap | Recommended Borrow Cap |
|---|---|---|---|---|---|
| Ethereum Core | USDtb | 300,000,000 | 200,000,000 | 240,000,000 | 70,000,000 |
| Ethereum Core | PT-USDe-5FEB2026 | 240,000,000 | 360,000,000 | - | - |
| Plasma | PT-sUSDe-15JAN2026 | 1,200,000,000 | 1 | - | - |
| Plasma | PT-USDe-15JAN2026 | 400,000,000 | 1 | - | - |
| Ethereum Core | EURC | 70,000,000 | 105,000,000 | 64,000,000 | 96,000,000 |
| Instance | Asset | Current Base Rate | Recommended Base Rate | Current Slope 1 | Recommended Slope 1 | Current Target Rate | Recommended Target Rate |
|---|---|---|---|---|---|---|---|
| Base | USDC | 1.75% | 0.00% | 4.75% | 5.00% | 6.50% | 5.00% |
| Base | GHO | 2.00% | 1.00% | 5.50% | 4.50% | 6.50% | 5.50% |
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.