Summary
A proposal to:
- Increase wstETH’s borrow cap on the Base instance.
- Increase USDC.e’s supply cap on the Sonic instance.
- Increase USDC.e’s supply cap on the Gnosis instance.
- Increase WETH’s supply cap on the Gnosis instance.
- Increase wstETH’s supply cap on the Gnosis instance.
- Decrease sUSD’s supply cap on Optimism instance.
wstETH (Base)
wstETH’s borrow cap utilization has reached 100%, while its supply cap utilization stands at 57%.
Supply Distribution
The supply distribution of wstETH is well-dispersed, with the largest supplier holding less than 10% of the total. All major suppliers are either borrowing assets that are highly correlated—such as WETH—or maintaining a strong health score (>1.2), indicating minimal liquidation risk at this time.
The largest borrowed asset against wstETH is WETH, representing 59% of the total borrowed distribution.
Borrow Distribution
The borrow distribution of wstETH presents limited concern at this time. All top borrowers are collateralizing wstETH-correlated assets, such as WETH, ezETH, weETH, and cbETH, largely reducing liquidation risks.
WETH, ezETH, and weETH are the three primary collateral assets used against wstETH, collectively accounting for 80% of the collateral distribution. This aligns with our analysis of top borrower behavior.
Liquidity
wstETH’s liquidity has experienced fluctuations in recent months but has remained generally stable. Currently, selling 1.3K wstETH would incur less than 2% price slippage.
Recommendation
Given user behavior and on-chain liquidity, we recommend increasing the borrow cap to 5.2K.
USDC.e (Sonic)
The supply cap utilization of USDC.e has reached 98%, while its borrow cap utilization currently stands at 32%.
Supply Distribution
The supply of USDC.e shows moderate concentration, with the top supplier holding 15% of the total distribution. However, since this supplier currently has no active borrowing positions, it poses no liquidation risk at this time.
The remaining top suppliers either have no borrowing activity or maintain a high health score, indicating limited liquidation risk.
The largest borrowed asset against USDC.e is WETH, which accounts for 49% of the total distribution.
Liquidity
Currently, a 10M USDC.e sell incurs less than 10% price slippage, supporting a supply cap increase.
Recommendation
Given user behavior and on-chain liquidity, we recommend increasing the supply cap to 360M USDC.e.
USDC.e (Gnosis)
USDC.e’s supply cap utilization has reached 93%, while its borrow cap utilization stands at 53%.
Supply Distribution
The supply distribution of USDC.e presents a concentration risk, with the top supplier accounting for 77% of the total. However, since this user currently has no borrowing activity, it poses no liquidation risk at this time.
The remaining USDC.e suppliers either have no borrowing activity or maintain a high health score, presenting no significant concerns at this time.
The largest borrowed asset against USDC.e is GNO, which accounts for 99% of the total distribution.
Liquidity
USDC.e’s liquidity has remained stable over the past three months, supporting a supply cap increase.
Recommendation
Given user behavior and on-chain liquidity, we recommend increasing the supply cap to 12M.
WETH (Gnosis)
WETH has reached 92% supply cap utilization and 49% borrow cap utilization.
Supply Distribution
The supply distribution of WETH presents a concentration risk, with the top supplier accounting for 41% of the total. However, since this user currently has no borrowing activity, it poses no liquidation risk at this time.
The remaining WETH suppliers either have no borrowing activity or maintain a high health score, presenting no significant concerns at this time.
The largest borrowed asset against WETH is USDC.e, accounting for 34% of the total distribution.
Liquidity
WETH’s liquidity has remained limited over the past two months. However, based on our analysis of top supplier behavior, this does not pose significant concerns at this time. Taking such limited liquidity into account, we propose a conservative increase.
Recommendation
Given user behavior and on-chain liquidity, we recommend increasing the supply cap to 4.8K.
wstETH (Gnosis)
wstETH has reached 95% supply cap utilization and 73% borrow cap utilization.
Supply Distribution
The supply distribution of wstETH presents a moderate concentration risk, with the top supplier accounting for 26% of the total. However, since this user currently has no borrowing activity, it poses no liquidation risk at this time.
The remaining wstETH suppliers either have no borrowing activity, maintain a high health score, or are borrowing WETH, presenting no significant concerns at this time.
The largest borrowed asset against wstETH is WETH, accounting for 54% of the total distribution, which significantly reduces the risk of large-scale liquidations.
Liquidity
wstETH’s liquidity has remained stable over the past three months, currently it allows 35 wstETH sell incurring less than 1% price slippage. However, given this liquidity is still limited, we will suggest a conservative supply cap increase.
Recommendation
Given user behavior and on-chain liquidity, we recommend increasing the supply cap to 9K.
sUSD (Optimism)
The soft pegged sUSD stablecoin has experienced a relatively significant deviation over the past 24 hours, dropping as low as $0.92.
Since the release of our sUSD deprecation plan outlined in this post, which effectively disabled borrows, set LTV to 0 and decreased E-mode LTs significantly, the market has contracted more than 70% to just 3.7M supplied and 2.5M borrowed.
The current outstanding distribution of collateral presents minimal risk to the protocol, as the stablecoin is still fundamentally overcollateralized and can factually be credited at a $1 valuation upon redemption. Minimal liquidations occur until a depeg of $0.80 (sub $400K in liquidations until a depeg of $0.56), while all outstanding debt is denominated in stablecoins.
In an effort to continue minimizing outstanding sUSD supply in the protocol, we recommend decreasing the supply cap to 3.8M, corresponding to the decreased supply.
Specification
| Instance | Asset | Current Supply Cap | Recommended Supply Cap | Current Borrow Cap | Recommended Borrow Cap |
|---|---|---|---|---|---|
| Base | wstETH | 18,000 | - | 4,000 | 5,200 |
| Sonic | USDC.e | 300,000,000 | 360,000,000 | 110,000,000 | - |
| Gnosis | USDC.e | 10,000,000 | 12,000,000 | 9,000,000 | - |
| Gnosis | wstETH | 8,200 | 9,000 | 400 | - |
| Optimism | sUSD | 10,000,000 | 3,800,000 | - | - |
| Gnosis | WETH | 4,000 | 4,800 | 3,500 | - |
Next Steps
We will move forward and implement these updates via the Risk Steward process.
Disclaimer
Chaos Labs has not been compensated by any third party for publishing this AGRS recommendation.
Copyright
Copyright and related rights waived via CC0