[ARFC] Remove Community Preference For Supply Cap Limits

[ARFC] Remove Community Preference For Supply Cap Limits Author: @ACI Date: 2024-09-11 Summary This proposal suggests removing the informal supply cap restriction previously set by the community in the past vote [ARFC] Increase Community Preference For Supply Cap Limits 7.

Motivation Supply caps for select tokens continue to be a limiting factor on growth. After the previous community preference vote to increase soft supply cap limits to 90% of total supply, we believe further adjustments are needed and feasible within a clear risk framework.

The current paradigm of limiting supply cap growth based on total supply doesn’t take into account specific nuances of networks and the fact that Aave serves as a demand driver for supply on a network as well as further liquidity.

A good example is that Scroll borrow cost for WETH is currently 2.3%, which is lower than other networks and leaving money on the table for the DAO. There is over 10k wETH available liquidity with a utilization of 81%. Increasing the supply cap of weETH on that network and assuming 1.2 weETH per wETH borrowed means an expected inflow to Aave of 5k weETH collateral, which is a manageable adjustment.

We suggest regularly reviewing the supply and borrowing rates. If the WETH borrow is below or equal to 25 bps below the wstETH staking yield, we suggest risk stewards implement a cap raise for collateral LST/LRT such as wstETH & weETH.

Specification We propose the community adopt the following:

The community preference for supply cap limits will be removed, with supply and borrow cap growth to be driven by the risk frameworks of risk service providers and strategic considerations for growth. Where borrow rates on WETH are below expected market demand, increase supply caps on relevant collaterals to boost borrow rates, leading to further supply inflows for WETH. Useful Links [Temp Check] - Community Preference for Supply Cap Limits for LSTs

[ARFC] Increase Community Preference For Supply Cap Limits 7

Disclaimer The ACI has not been compensated for the publication of this proposal.

Next Steps Publish a standard ARFC and collect community & service provider feedback before an ARFC snapshot. If the ARFC snapshot passes, this community preference becomes canon and risk service providers incorporate this into current and future recommendations. Copyright Copyright and related rights waived under CC0