Overview
Chaos Labs provide the following recommendations regarding the proposed changes to the Mantle instance. First, we support the conditional listing of XAUt on the Mantle market with a dedicated Stablecoin E-Mode, subject to the availability of appropriate oracle infrastructure. Second, we do not recommend enabling USDT0 as collateral or introducing a USDT0/USDe E-Mode, given the expected limited use cases and relatively shallow liquidity of USDT0 on Mantle. Finally, we recommend setting dedicated Stablecoin E-Mode for WMNT and WETH based on their expected use case and risk profiles.
Below, we present our analysis and proposed risk parameters.
XAUt
XAUt (Tether Gold) is a digital asset issued by TG Commodities S.A. de C.V., with each token representing ownership of one fine troy ounce of physical gold. Chaos Labs has previously provided a detailed technical analysis of XAUt in this post. Based on our review of the latest Tether Gold quarterly reserves report, XAUt maintains a fully backed structure, with each token supported by at least one fine troy ounce of physical gold held in custody. The reported gold reserves closely match the total token supply, indicating a 1:1 backing between circulating XAUt and underlying gold reserves.
On Mantle, XAUt is deployed via the Mantle L1/L2 Standard Bridge, where the canonical token is escrowed on Ethereum and a corresponding representation is minted on Mantle. Currently, the total XAUt supply on Mantle is approximately 5K, accounting for around 0.7% of the total circulating supply.
Recommendation
Supply Cap
Currently, XAUt has no meaningful liquidity on Mantle. However, the Mantle team has indicated that approximately $5M of liquidity is expected to be deployed to support trading. This level of liquidity should be sufficient to ensure functional market conditions from launch, supporting the safe listing of the asset. Based on this expected liquidity, we recommend setting an initial supply cap of 4K XAUt.
Stablecoin E-Mode
We support configuring XAUT in the Mantle Core Market as non-collateral and non-borrowable, alongside the introduction of a dedicated XAUT–Stablecoin E-Mode, where XAUT is enabled as collateral and stablecoins are designated as borrowable assets. This setup enables XAUT-based liquidity strategies while maintaining a controlled risk profile by ensuring that the debt side remains limited to stable assets, avoiding scenarios where both collateral and debt are highly volatile. As a result, overall risk exposure is significantly reduced.
Oracle
We recommend using the XAU/USD Chainlink oracle to price XAUT, in line with configurations on other Aave instances. However, as this oracle is not yet live on Mantle, this recommendation is conditional upon its availability.
USDT0
We do not support enabling USDT0 as collateral. In practice, stablecoins are predominantly used as borrowable assets rather than collateral, as users typically seek to borrow stablecoins against more volatile assets to access liquidity. Enabling a stablecoin as collateral therefore adds limited incremental utility while potentially introducing inefficient capital usage. This is further compounded by weak liquidity conditions for USDT0 on Mantle, where approximately $850K in sell pressure to USDC results in around a 5% price impact, indicating insufficient depth to support reliable liquidation flows.
For the same reasons, we do not support introducing a USDT0/USDe E-Mode. The configuration offers limited practical demand, while liquidity between the two assets remains shallow, with ~$800K of USDT0 sold into USDe resulting in ~3% price impact. Although both assets share the same oracle, the lack of organic use case make this E-Mode difficult to justify from a capital efficiency perspective.
WETH & WMNT
Liquidity
As the time of this writing, WETH liquidity on Mantle is primarily concentrated in the following pools: the WETH/cmETH Merchant Moe Liquidity Pool (4 bps) with a total TVL of $1.13M, the WETH/cmETH Angi Finance Liquidity Pool with a total TVL of $1.12M, the WETH/cmETH Merchant Moe Liquidity Pool (1 bps) with a total TVL of $277.56K, and the WETH/mETH Merchant Moe Liquidity Pool with a total TVL of $316.34K. These pools facilitate swaps between cmETH and WETH; however, liquidity between WETH and other assets remains very limited. Currently, selling approximately $220K worth of WETH would result in around a 5% price impact, indicating shallow market depth and insufficient liquidity resilience.
At the same time, MNT liquidity is primarily concentrated in the WMNT/USDe Merchant Moe pool (TVL ~$3.77M), the WMNT/USDT0 Merchant Moe pool (TVL ~$1.23M), and the WMNT/USDe Agni Finance pool (TVL ~$3.33M). However, these pools only support selling approximately $700K worth of WMNT within ~5% price slippage, also showing insufficient market depth.
Stablecoin E-Mode
Given the limited on-chain liquidity for WMNT and WETH on Mantle, combined with their nature as volatile assets, we believe that limiting the debt side to stablecoins where possible would materially reduce protocol risk. Limited liquidity increases slippage during stress events, weakening liquidation efficiency and making it more difficult to reliably unwind positions. By constraining debt exposure toward stablecoins, risk is more effectively concentrated on the collateral side, reducing the likelihood and severity of liquidation cascades.
For WMNT specifically, this approach is also consistent with expected user behavior. Using WMNT as collateral to borrow other volatile assets is not a typical or intended use case. Therefore, restricting WMNT collateral usage to a dedicated Stablecoin E-Mode would improve the protocol’s risk profile without materially affecting legitimate user demand.
Currently, this behavior is implicitly enforced through Isolation Mode and debt ceilings. However, both WMNT and WETH are expected to be removed from Isolation Mode as part of the Aave v3.7 upgrade, which would eliminate these constraints. To preserve the intended risk profile post-upgrade, we recommend introducing a dedicated Stablecoin E-Mode for WMNT with parameters aligned to existing configurations, and restricting WMNT collateral usage exclusively within this E-Mode. This would ensure WMNT can only be used efficiently to borrow stablecoins in a controlled environment while preventing exposure to other volatile assets.
For WETH, while the rationale for introducing a Stablecoin E-Mode remains strong given Mantle’s liquidity constraints, we believe broader collateral usage should remain supported. Compared with WMNT, WETH benefits from deeper liquidity, more mature market infrastructure, and broader market acceptance, making its use as collateral to borrow other volatile assets a more relevant and legitimate use case. As such, we recommend introducing a dedicated Stablecoin E-Mode for WETH with more favorable borrowing parameters to encourage safer stablecoin borrowing, while still allowing WETH to be used as collateral outside of E-Mode under the Core Instance’s more conservative risk parameters. This balances risk mitigation with user flexibility and preserves WETH’s broader utility within the protocol.
Specification
Mantle Core Market Configuration
Stablecoin E-Mode Configuration
XAUt Stablecoin E-Mode Configuration
WETH Stablecoin E-Mode Configuration
WMNT Stablecoin E-Mode Configuration
Disclaimer
Chaos Labs has not been compensated by any third party for publishing this recommendation.
Copyright
Copyright and related rights waived via CC0
