Summary
A proposal to:
- Increase the supply cap of syrupUSDT on the Plasma Instance
- Increase the supply cap of syrupUSDC on the Base Instance
- Increase the debt ceiling of XAUt on the Ethereum Core Instance
- Decrease the supply cap of BAL on the Ethereum Core Instance
- Increase the supply cap of WETH on the Celo 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.
syrupUSDT (Plasma)
syrupUSDT has reached its supply cap of 400 million tokens, indicating substantial demand to loop the asset with USDT0 within the Plasma instance. As the market is exhibiting signs of excess demand, we recommend updating the supply cap of the asset.
Supply Distribution
The supply distribution of syrupUSDT is highly concentrated, as the top user represents 56% of the total supply. While such concentration poses substantial risk, it can be attributed to the high demand to enter the market. The position’s health factors are primarily in the 1.02-1.04 range, which, given the high correlation of the debt and collateral prices and shared underlying, USDT, presents minimal liquidation risk.
Liquidity
At the time of writing, syrupUSDT on-chain liquidity is sufficient to limit slippage on a 6.5 million token swap to conservative 110 basis points, supporting an expansion of the supply cap.
Recommendation
Considering the substantial outstanding demand to loop syrupUSDT with USDT0, along with conservative user behavior and ample on-chain liquidity, we recommend expanding the supply cap of the asset.
syrupUSDC (Base)
syrupUSDC has reached 100% of its 100 million supply cap within 24 hours since the previously proposed increase. Given the continuously elevated demand to recursively collateralize USDC debt with syrupUSDC on the Base instance, we recommend a further moderate expansion of the supply cap.
Supply Distribution
Since our previous review, the concentration of supply has increased as the top user has increased their position disproportionately; therefore, they currently account for 54% of the market, as compared to 36% a few days earlier. Such dynamics further confirm the claim regarding underutilized demand to loop the asset, as the market is still highly competitive for entry. The distribution of health factors is moderately safe, given the high correlation of the debt and collateral assets, and presents minimal liquidation risk.
Liquidity
Current on-chain liquidity, which is primarily concentrated on the Fluid dex, is sufficient to facilitate a 6 million token sell order at conservative 15 bps slippage.
Recommendation
Given the underutilized demand to loop the asset, the high correlation and shared underlying of the debt and collateral assets, along with favorable liquidity conditions, we recommend expanding the supply cap for syrupUSDC on the Base instance.
XAUt (Ethereum Core)
Following up on our previous recommendation to increase the debt ceiling of XAUt, we have observed additional demand to utilize the asset on the Ethereum Core instance. Specifically, the additional debt ceiling capacity has been filled in less than 24 hours, indicating growing demand to borrow against the asset.
Debt accumulation in the market is highly concentrated, with the top position accounting for over 75% of all XAUt-collateralized borrowing. Given the relatively limited absolute size of the market and ample XAUt liquidity, along with XAUt’s conservative volatility profile, the market currently presents minimal liquidation risk.
Recommendation
To meet the outstanding demand for collateralizing stablecoin debt with XAUt, we recommend further increasing the asset’s debt ceiling. Given that the current configuration allows a maximum change of 20%, we propose 3 incremental increases over the next week. Specifically, raising the debt ceiling from 30 to 36 million, then to 43 million, and finally to 50 million.
BAL (Ethereum Core)
As outlined in our recent market-events report, we recommend proceeding with an additional deprecation step for BAL on Ethereum Core. During the last 7 days of elevated volatility, Aave processed significant liquidation volume and ended the period net-profitable; however, the only material deficit realized during the event stemmed from a BAL-collateralized position.
This deficit was driven by a sharp BAL drawdown (60% over 2 hours) that coincided with the liquidation of a dominant BAL position, which materially impaired liquidation execution quality and led to residual shortfall. Following this unwind, BAL market size on Aave has contracted by over 95%, resulting in minimal BAL-collateralized debt exposure.
Recommendation
To formalize the wind-down and prevent renewed exposure, we recommend reducing BAL’s supply cap to 1, thereby effectively disabling new deposits while allowing withdrawals.
USDG (Ethereum Core)
USDG has reached its supply cap of 30 million tokens, indicating high demand to lend the asset on the Ethereum Core instance.
Supply Distribution
The supply distribution of USDG is moderately concentrated as approximately 30% of the market is attributed to the top wallet. While concentration is high, it mostly presents the risk of rate volatility if a major supplier is to withdraw. Additionally, given the borrow-only configuration of the asset, the supply-side of the market presents no liquidation risk.
Borrow Distribution
The borrow distribution exhibits a higher level of concentration as compared to the supply, with the top user accounting for over 70%. The distribution of health factors is in the 1.03 - 1.24 range, while such levels are usually considered risky, the borrowers are underwriting USDG debt primarily with other stablecoins such as PYUSD, which accounts for over 89% of all collateral posted. Given the high correlation of the debt and collateral assets, the implied liquidation risk of the market is currently minimal.
Recommendation
Considering the elevated demand for USDG lending, correlated borrowing, which is likely incentive driven, along with conservative user behavior, we recommend raising the supply and borrow caps of USDG.
WETH (Celo)
WETH reached its supply cap in the fall of 2025, but an expansion of the caps was not permitted due to highly constrained liquidity. However, the asset’s available liquidity has recently expanded substantially on the Celo instance, prompting a revision of its supply cap.
Supply Distribution
Supply distribution of WETH is moderately concentrated as the top user represents approximately 23% of the market, while the top 14 users account for 69%. As can be observed on the plot below, the health factors are primarily in a safe 1.10-1.74 range, which, given limited volatility exposure due to the dominant position of USDT in debt assets, presents moderate liquidation risk.
Liquidity
At the time of writing, WETH liquidity is sufficient to facilitate a swap of 50 tokens at a 7% slippage, supporting a conservative increase of the supply cap of the asset on the Celo instance.
Recommendation
Considering WETH’s sustained utilization at the current cap, the material improvement in available on-chain liquidity, and a moderately concentrated supply profile with generally conservative health factors, we recommend increasing the supply cap of WETH on the Celo instance.
Specification
| Instance | Asset | Current Supply Cap | Recommended Supply Cap | Current Borrow Cap | Recommended Borrow Cap |
|---|---|---|---|---|---|
| Plasma | syrupUSDT | 400,000,000 | 450,000,000 | - | - |
| Base | syrupUSDC | 100,000,000 | 200,000,000 | - | - |
| Ethereum Core | BAL | 10,000,000 | 1 | 1 | - |
| Ethereum Core | USDG | 30,000,000 | 60,000,000 | 25,000,000 | 50,000,000 |
| Celo | WETH | 2,200 | 3,000 | 900 | - |
| Instance | Asset | Current Debt Ceiling ($) | Recommended Debt Ceiling ($) |
|---|---|---|---|
| Ethereum Core | XAUt | 30,000,000 | 50,000,000 |
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.