What is this about?

The discussion continues to revolve around ChaosLabs' proposal to increase the supply and borrow caps for several assets across different chains, including Ethereum, Arbitrum, Avalanche, and Metis. The proposal is based on the current utilization rates of these assets. For instance, on Ethereum, the supply cap for MKR is suggested to be increased to 22.5K MKR, a change from the initial proposal of 30K, due to potential decrease in MKR ADV which may affect liquidity³. Similarly, on Arbitrum, the borrow cap for rETH is recommended to be increased to 680, considering its 98% utilization. For Avalanche, both the supply and borrow caps for WAVAX are proposed to be raised to 5.7M and 3.6M respectively, given their utilization rates of 91% and 84%. Lastly, on Metis, the borrow cap for METIS is suggested to be doubled to 32K, as it is currently at 93% utilization¹. In a recent update, ChaosLabs has also recommended an increase in the borrow cap for RPL on Ethereum due to it reaching 81% utilization². ChaosLabs reported that the transaction for the Metis update was successfully executed⁶.

How is the community reacting?

The community's reaction to this proposal is still pending. The next steps involve receiving feedback from Gauntlet on these recommendations. Once the feedback is received, the proposed updates will be implemented via the Risk Steward process¹. Gauntlet supports the proposed changes but recommends an increase in the MKR supply cap to 22.5k instead of 30k due to potential decrease in MKR ADV which may affect liquidity³. ChaosLabs has updated the proposal with this recommendation and prepared the payload to be executed via the Risk Steward process for Ethereum, Arbitrum, and Avalanche⁴. They will follow up shortly with the payload for Metis. Gauntlet reported that a certain action has been executed via risk steward⁵.

Why this is positive?

The proposed increase in supply and borrow caps for these assets could potentially lead to increased liquidity and borrowing capacity in these markets. This could, in turn, stimulate more activity and growth in these markets, benefiting the users and the overall ecosystem. The recent recommendation to increase the borrow cap for RPL on Ethereum could also contribute to this positive impact².

Why this is negative?

On the other hand, increasing the supply and borrow caps could potentially lead to increased risk exposure. If the utilization rates are already high, further increases in the caps could potentially lead to over-leveraging and increased risk of liquidation. Therefore, these changes need to be carefully evaluated and monitored. The recent recommendation to increase the borrow cap for RPL on Ethereum also falls under this consideration².