Chaos Labs - Isolated Pools Risk Parameter Updates

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Supply and Borrow Cap Recommendations for FLOKI and stkBNB

Overview

A proposal to increase the supply and borrow caps for FLOKI, stkBNB:

  1. FLOKI (GameFi pool) supply cap has reached ~100%, and borrow cap has reached ~97%.
  2. stkBNB (LST pool) borrow cap has reached 95%.

We acknowledge the high supply cap utilization of TRX and BTT. We are actively monitoring the borrow usage and on-chain liquidity, and any significant changes in this aspect will also be promptly communicated to the community.

Methodology

Supply Cap

Definitions:

  1. CurrentSupplyCap - the current supply cap configured for the asset
  2. ExtremeLiquidationAmount - the amount eligible for liquidation given an extreme drop in the asset price. We define the “extreme drop” for different market cap classes as follows:
    1. Small Cap (<$2B) - 50% drop
    2. Medium Cap ($2B-$20B) - 35% drop
    3. Large Cap (>$20B) and Stables- 15% drop
  3. MaxAmountLiquidated - the maximum amount that can be liquidated while keeping the slippage below the Liquidation Penalty

Framework:

  1. Evaluate the ExtremeProfitableLiquidationRatio:

This ratio represents how many times the ExtremeLiquidationAmount can be profitably liquidated had it all been liquidated at once. Requiring 90% of an asset’s liquidated amount will be liquidated at once is a defensive approach and can be set differently given changing risk appetites.

  1. Set R = min(ExtremeProfitableLiquidationRatio, 2)
  2. RecommendedSupplyCap = CurrentSupplyCap * R

Notes:

  1. The above assumes that additional supply and borrow amounts will be distributed similarly to the current supply and borrowing activity.
  2. To accommodate the unexpected borrower and market behavior, we provide an upper bound of 2*CurrentSupplyCap on the increase in supply caps.
  3. To prevent over-concentration of a token’s on-chain liquidity on Venus, we cap the supply of each token at 50% of its total circulating supply on a given network.
  4. We recommend waiting at least two weeks between consecutive recommendations for a single asset to analyze suppliers’ and borrowers’ behavior.
  5. For simplicity, we will round the recommended numbers to the nearest round number.

Please note that we also consider additional factors while setting supply and borrowing caps. These include the total on-chain supply of the asset, redemption process (where applicable), oracle setup, and the potential for price manipulation and long/short attacks, all of which could influence our recommendations.

Analysis:

FLOKI

Given the calculation below, our methodology allows for increasing the supply cap of FLOKI to 68,000,000,000.

Current Supply Cap Extreme Liquidation Amount (Floki) Max Amount Liquidated (Floki) R Recommended Supply Cap
FLOKI 44,000,000,000 7,400,000,000 10,400,000,000 1.55 68,000,000,000

Analyzing current usage in the GamFi pool, we recommend doubling the borrowing cap of FLOKI to 22,000,000,000 to allow additional borrow and asset pool utilization, given the higher supply cap recommended above.

stkBNB

The original borrow caps for the LSTs in the pool were set conservatively at 10% of the initial supply cap:

From Chaos Labs - Risk Parameter Recommendations for Isolated Markets

Given the current rewards in the pools, there is a clear use case for borrowing stkBNB to earn these rewards. With current liquidity levels, we recommend doubling the borrowing cap to 580.

Recommendation

Current Supply Cap Recommended Supply Cap Current Borrow Cap Recommended Borrow Cap
FLOKI 44,000,000,000 68,000,000,000 11,000,000,000 22,000,000,000
stkBNB 2,900 No Change 290 580
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Importante actualizaciĂłn para seguir fortaleciendo los mercados aislados!

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