Chaos Labs Risk Parameter Updates - 12/20/23
Overview
Chaos Labs recommends updating supply and borrow caps across Seamless assets:
| Asset | Current Supply Cap | Recommended Supply Cap | Current Borrow Cap | Recommended Borrow Cap |
|---|---|---|---|---|
| USDbC | N/A | 6,000,000* | 400,000 | 5,400,000 |
| USDC | 200,000 | 2,700,000 | 150,000 | 2,500,000 |
| DAI | 100,000 | 1,000,000 | 50,000 | 900,000 |
| WETH | N/A | 2,500** | 254 | 2,000 |
| cbETH | 800 | 1,600 | 121 | 800 |
(*) Given the current supply on Seamless, this would lead to effectively pausing additional supply. Should the community decide to opt for the continued growth of the pool, we recommend setting the supply cap at 50% of the total circulating supply which is currently 66m WETH.
(**) Given the current supply on Seamless, this would lead to effectively pausing additional supply. Should the community decide to opt for the continued growth of the pool, we recommend setting the supply cap at 50% of the total circulating supply which is currently 27.5k WETH.
Analysis
The recommendations below were made utilizing Chaos’ supply and borrow cap methodologies and after analyzing user positions for each asset. For the coming recommendation, we utilize our framework for initial supply and borrow caps for new assets and deployments and propose setting initial supply caps at 2x the liquidity available under the Liquidation Penalty price impact.
USDC
Overview
The supply cap and borrow cap for USDC on Seamless are currently at 100% utilization.
Given the concentrated liquidity of USDbC as shown in the liquidity analysis below, we recommend setting the supply cap at 2,700,000 USDC, and the borrow cap at 2,450,000 USDC.
Positions Analysis
Currently, ~66% of the borrows of USDC are borrowed against USDbC to farm incentive rewards. While the incentive program has driven increased usage, it’s worth noting that a substantial portion of this activity involves users looping the same asset to capture yield.
Notably, a single user is supplying 66% of USDC supply cap and borrows 56% of USDC borrow cap:
Liquidity
The current on-chain liquidity for USDC on Base against ETH is ~1.35M USDC under the liquidation bonus price impact.
Circulating Supply
The current circulating supply sits at ~177M USDC.
USDbC
Overview
The borrow cap for USDbC on Seamless is currently at 100% utilization.
Given the concentrated liquidity of USDbC as shown in the liquidity analysis below, we recommend setting the supply cap at 6,000,000 USDbC, and the borrow cap at 5,600,000 USDbC.
Given the current supply on Seamless, this would lead to effectively pausing additional supply. Should the community decide to opt for the continued growth of the pool, our recommendation is to cap at 50% of the total circulating supply which is currently 66M USDbC.
Positions Analysis
Currently, ~54% of the borrows of USDbC are borrowed against USDbC to farm incentive rewards. While the incentive program has driven increased usage, it’s worth noting that a substantial portion of this activity involves users looping the same asset to capture yield.
Three major users borrow USDbC on Seamless, accounting for more than 67% of total borrows. These accounts are borrowing USDbC against USDbC:
- 0x8442e9e265563ddc642b4f4f69d8acccad5a0e6b - borrowing ~169K USDbC backed by ~169K USDbC, ~138K WETH and ~310K cbETH collateral, accounting for 42% of the borrow cap. The user’s current health score is 1.19.
- 0x2ececf5a33d038694133bbf3a22aeafbc96d4b04 - borrowing ~52K USDbC backed by ~189K USDbC, ~51K WETH and ~83K cbETH collateral, accounting for ~13% of the borrow cap. The user’s current health score is 2.44.
- 0xc943567973fc93d78b19140f83524cdd7366f299 - borrowing 50K USDbC backed by ~113K USDbC collateral, accounting for ~12.5%% of the borrow cap. The user’s current health score is 1.79.
Liquidity
The current on-chain liquidity for USDbC on Base against WETH is ~3M USDbC under the liquidation bonus price impact.
Circulating Supply
The current circulating supply sits at ~112M USDC.
Our supply cap methodology recommends limiting the supply cap of an asset to 50% of the on-chain circulating supply, which is 61M USDbC
DAI
Overview
The supply cap and borrow cap for DAI on Seamless are currently at 100% utilization.
Given the concentrated liquidity of DAI as shown in the liquidity analysis below, we recommend setting the supply cap at 1,000,000 DAI, and the borrow cap at 900,000 DAI.
Positions Analysis
Liquidity
The current on-chain liquidity for DAI on Base against USDbC is ~500K DAI under the liquidation bonus price impact.
Circulating Supply
The current Circulating Supply sits at ~9.4M DAI.
WETH
Overview
The borrow cap for WETH on Seamless is currently at 100% utilization.
Given the concentrated liquidity of WETH as shown in the liquidity analysis below, our methodology suggests setting the supply cap at 2,500 WETH, and the borrow cap at 2,000 WETH.
Given the current supply on Seamless, this would lead to effectively pausing additional supply. Should the community decide to opt for the continued growth of the pool, our recommendation is to cap at 50% of the total circulating supply which is currently 27.5K WETH.
Positions Analysis
Currently, ~58% of the borrows of WETH are borrowed against WETH to farm incentive rewards. While the incentive program has driven increased usage, it’s worth noting that a substantial portion of this activity involves users looping the same asset to capture yield.
Liquidity
The current on-chain liquidity for WETH on Base against USDbC is ~1,250 WETH under the liquidation bonus price impact.
Circulating Supply
The current Circulating Supply sits at ~55K WETH.
Our supply cap methodology recommends limiting the supply cap of an asset to 50% of the on-chain circulating supply, which is 27.5K WETH
cbETH
Overview
The supply cap and borrow cap for cbETH on Seamless are currently at 100% utilization.
Utilizing our supply and borrow cap methodology and considering the current usage on Seamless and liquidity conditions, we recommend setting the supply cap to 1,600 cbETH, and increasing the borrow cap to 900 cbETH.
Analysis
Positions Analysis
Currently, ~56% of the borrows of cbETH are borrowed against cbETH to farm incentive rewards. While the incentive program has driven increased usage, it’s worth noting that a substantial portion of this activity involves users looping the same asset to capture yield.
Liquidity
The current on-chain liquidity for cbETH on Base against WETH is ~550 cbETH under the liquidation bonus price impact.
Circulating Supply
The current Circulating Supply sits at ~19K cbETH.
Our supply cap methodology recommends limiting the supply cap of an asset to 50% of the on-chain circulating supply, which is ~9.5K cbETH