The discussion revolved around the proposal by Jmo to introduce a supply cap for the AAVE asset on Aave's v3 deployment on Optimism, aiming to reduce risk in the protocol¹. The proposed cap was 100,000 AAVE, which was met with reservations by ChaosLabs, who suggested a lower cap of 14,000 AAVE based on current liquidity levels on Optimism². This suggestion was driven by the identification of a market distortion caused by a single account supplying 87% of the total AAVE supply on Optimism, which could not be liquidated with the current liquidity levels, posing a risk to the protocol².

The discussion led to a proposal by Fig for a modified Snapshot vote with options to adjust the supply cap to either 100,000 AAVE or 14,000 AAVE, or to abstain³. Jmo agreed to this proposal, expressing openness to a lower cap but acknowledging that a 14k cap could freeze market growth⁵. They also proposed setting caps for the community to decide if they want to bet on cross-chain liquidity, with plans to set conservative supply caps for all assets the following week⁵.

The discussion concluded with Pauljlei announcing the progression of an AIP to add a supply cap to the AAVE token on V3 Optimism to immediately reduce tail risk⁷. The community seemed to agree on the necessity of a cap, with PennBlockchain suggesting that the proposed 100k high cap was a good starting point, and further adjustments could be discussed with a "hedge" in place⁸. The discussion emphasized the importance of data-driven discussions when setting caps and defining risk parameters, with anticipation for further proposals and iterations on the assumptions and methodology^6,7.