[Direct to AIP] Increase rsETH Supply Cap on Aave V3 Linea Instance

[ACI]

[Direct to AIP] Increase rsETH Supply Cap on Aave V3 Linea Instance

Author: ACI

Date: 2025-09-05

2025-09-08 Risk Service Providers have updated the Supply CAP and proposal has been updated accordingly.

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Summary

This proposal seeks to increase the rsETH supply cap on the Aave V3 Linea instance to accommodate growing demand and prevent supply cap limitations that restrict user access.

The proposal will follow a Direct to AIP process since rsETH is already listed on several Aave V3 instances.

Motivation

rsETH has demonstrated strong demand across Aave V3 deployments, with supply caps frequently reaching high utilization rates.

As a liquid restaking token that has proven its utility and risk profile across multiple Aave instances (Ethereum, Arbitrum, Base), increasing the supply cap on Linea will:

• Improve User Experience: Prevent users from being unable to supply rsETH when caps are reached
• Optimize Capital Efficiency: Allow more users to access rsETH-based strategies on Linea
• Support Network Growth: Enable the Linea ecosystem to capture more TVL and activity
• Maintain Competitiveness: Ensure Aave on Linea remains attractive for rsETH holders

While current cap increase via Risk Steward (100% per time lock period) does not accommodate the strong market demand for this asset, rsETH has demonstrated a strong track record across Aave deployments with:

• Proven liquidation mechanisms and oracle reliability
• Consistent performance across market conditions
• Active risk monitoring by service providers
• Established precedent on other networks

Specification

Current Parameters:

• Current Supply Cap: 3.2K
• Current Utilization: 100%

Proposed Changes:

• New Supply Cap: 70K

Note: The specific new supply cap value will be determined based on recommendations from Aave’s Risk Service Providers during the community feedback period.

Once Risk Service Providers have provided their feedback, the proposal will be updated accordingly.

2025-09-10 Risk Service Providers have updated the Supply CAP and proposal has been updated accordingly.

Instance	Asset	Current Supply Cap	Recommended Supply Cap
Linea	wrsETH	6,400	12,800

Implementation

The proposed supply cap increase will be implemented through a standard AIP payload that updates the Linea instance configuration, while maintaining existing risk parameters.

Useful Links

• [Direct to AIP] Onboard rsETH to Aave V3 Linea Instance
• Kelp DAO Documentation
• Aave V3 Linea Instance

Risk Provider Analysis

This section will be updated with formal analysis from Chaos Labs, LlamaRisk, and other risk service providers during the community feedback period.

Next Steps

1. Community Feedback Period: Collect feedback from the community and risk service providers
2. Risk Provider Recommendations: Incorporate formal analysis and recommended supply cap values
3. AIP Publication: Publish the final AIP for on-chain voting
4. Implementation: Execute the supply cap increase upon successful governance vote

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Disclaimer

This proposal is powered by Skywards. The Aave Chan Initiative is not directly affiliated with Kelp DAO and did not receive compensation for creating this proposal.

Copyright

Copyright and related rights waived under CC0.

[ChaosLabs]

Overview

Chaos Labs is supportive of the proposal to increase the wrsETH supply on the Aave V3 Linea instance to 70,000 wrsETH.

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.

Motivation

As shown in the chart below, the recent supply cap increases have been quickly filled, indicating significant demand for wrsETH deposits on Aave Linea, at times within hours of the increase being made public.

While wrsETH on Aave V3 Linea instance is not limited to being used as collateral to borrow ETH correlated assets, the entirety of the current demand is driven by the usage within the WETH E-Mode. This significantly minimizes the liquidation risk; additionally, the high concentration currently present in the market is a common occurrence within quickly growing markets, as it’s primarily due to the present supply caps limiting other actors from supplying into the market.

The liquidity of the asset has also improved significantly since the launch of the Linea rewards, with current depth supporting a swap of 2,000 WETH before incurring significant price slippage.

Recommendation

Given the consistent high demand for the asset, together with the safe user positioning and increase in DEX liquidity, supporting a higher volume of liquidations, Chaos Labs supports the proposed supply cap increase to 70,000 wrsETH.

Specifications

Asset	Blockchain	Current Supply Cap	Recommended Supply Cap
wrsETH	Linea	6,400	70,000

Disclaimer

Chaos Labs has not been compensated by any third party for publishing this recommendation.

Copyright

Copyright and related rights waived via CC0

[LlamaRisk]

LlamaRisk supports the proposal to increase the wrsETH supply cap to 70,000 on the Aave V3 Linea market.

Reasoning

High Demand: The current supply caps are consistently full, indicating strong, unmet user demand. Raising the cap is a necessary step to meet user demand.

Low-Risk Usage: As mentioned by @ChaosLabs, the vast majority of wrsETH is supplied to borrow WETH in E-Mode. Due to the high correlation between wrsETH and WETH, this strategy presents a limited liquidation risk.

Stable Peg: The asset has demonstrated a healthy and reliable peg on Linea. Arbitrage between Linea and Ethereum Mainnet appears efficient, ensuring the Linea price does not deviate significantly.

The chart below illustrates this stability, showing the wrsETH price on Linea closely tracking the price on Ethereum Mainnet. This tight correlation is a strong positive signal for the asset’s health as collateral.

Chart: wrsETH/WETH price on Ethereum Mainnet (Candlesticks) vs. Linea (Orange Line).

Source: Dexscreener, September 5th, 2025.

Recommendation

Given the strong demand and low-risk user behavior, we are confident the Aave Linea market can safely accommodate the proposed increase.

Disclaimer

This review was independently prepared by LlamaRisk, a DeFi risk service provider funded in part by the Aave DAO. LlamaRisk is not directly affiliated with the protocol(s) reviewed in this assessment and did not receive any compensation from the protocol(s) or their affiliated entities for this work.

[ChaosLabs]

Update

In anticipation of the execution of the AIP, and following the coverage of the risks in the original post, Chaos Labs will proced to increase the Supply Cap of wrsETH on the Aave V3 Linea instance according to the constrained offered by the Risk Stewards.

Specifications

Instance	Asset	Current Supply Cap	Recommended Supply Cap
Linea	wrsETH	6,400	12,800

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.

[kpk]

We support the supply cap increase based on the Risk Service Providers’ assessment, and commend Chaos Labs for proactively raising the cap through the Risk Steward process while the AIP is still pending. We will vote accordingly.

[ChaosLabs]

Update

In anticipation of the execution of the AIP, and following the coverage of the risks in the original post, Chaos Labs will proced to increase the Supply Cap of wrsETH on the Aave V3 Linea instance according to the constrained offered by the Risk Stewards.

Specifications

Instance	Asset	Current Supply Cap	Recommended Supply Cap
Linea	wrsETH	12,800	25,600

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.