[Gauntlet] - Monthly Risk Parameter Recommendations (2025-05-28)

[Gauntlet]

Summary

Gauntlet recommends the following parameter changes across Euler Prime, Yield, Base, and Unichain markets:

IRM Recommendations

Market	Asset	Kink Borrow APY	Max Borrow APY	Kink
Euler Prime	USDC	5.5%	40%	90% ->92%
Euler Base	USDC	5% ->4.5%	80% → 40%	90%
Euler Unichain	USDC	5% ->6%	80% → 40%	90%
Euler Unichain	USDT0	5% ->6%	80% → 40%	90%

Cap Recommendations

Market	Vault	Supply Cap	Borrow Cap
Euler Prime	tETH	12K → 24K	No Change
Euler Yield	eUSDE	60M → 120M	51M → 110M

Prime Market

IRM Recommendations

Asset	Kink Borrow APY	Max Borrow APY	Kink
USDC	5.5%	40%	90% ->92%

Below is a structured scenario analysis based on the proposal to raise the kink point to 92% on Euler’s Prime Market for USDC:

Scenario 1: Utilization < 90%

• Impact: Neutral
• Explanation: At these levels, the interest rate remains on the pre-kink slope regardless of kink changes.
• Conclusion: The kink increase has no material effect.

Scenario 2: Utilization Between 90% and 92% (current level)

• Impact: Positive
• Explanation:
  • Raising the kink from 90% to 92% allows interest rates to remain within the lower, pre-kink slope across this utilization range.
  • This delivers more predictable and moderate borrowing costs, improving the experience for borrowers.
  • It enables stable interest rates for an extra ~$600K in borrow capacity (2% of a $30M supply). As total supply increases, this buffer expands proportionally, offering even more headroom for demand growth without entering the steeper, post-kink rate regime.
  • It also maintains attractive borrowing conditions, encouraging continued demand without prematurely triggering high interest penalties.
• Supply Distribution Context:
  • USDC supply on Prime totals approximately $30M.
    
    
  • The largest supplier holds around $500K, and the top 10 suppliers combined account for ~$1M—representing roughly 3% of total supply.
    
    
  • Even with utilization around 92%, these suppliers retain a comfortable exit buffer.
• Conclusion: The kink adjustment improves protocol efficiency, ensures borrower rate stability, and maintains exit flexibility for a meaningful portion of USDC supply.

Scenario 3: Utilization 92% – 96%

• Impact: Positive
• Explanation:
  • At 92% kink, the protocol allows more supply to be utilized before hitting the steep rate slope.
  • Compared to a 90% kink, additional 2% of utilization falls under the lower interest rate region.
  • Encourages more borrowing without over-penalizing borrowers.
  • Maintains exit flexibility for big suppliers (see Supply Distribution context above).
• Conclusion: Improves capital efficiency and protocol revenue stability and maintains exit flexibility for a meaningful portion of USDC supply.

Scenario 4: Utilization > 96%

• Impact: Potentially Risky for Large Suppliers
• Explanation:
  • Higher utilization increases interest rates rapidly post-kink.
  • Suppliers might face withdrawal friction.
  • Top 10 suppliers (<$1M) may struggle to exit with utilization above 96% if they choose to exit simultaneously. However, the largest USDC suppliers maintain diversified borrowing positions across assets like WETH, BTC-wrapped tokens, and USDT—reducing the likelihood of a coordinated exit.
    
    
• Conclusion: Utilization above 96% poses risks if large suppliers attempt to exit simultaneously, though diversified borrowing reduces the likelihood of coordinated exits.

The visualization below summarizes the scenario analysis.

Cap Recommendations

Market	Vault	Supply Cap	Borrow Cap
Euler Prime	tETH	12K → 24K	No Change

Onchain Circulatioin: ~81K

Yield Market

Cap Recommendations

eUSDe

Market	Vault	Supply Cap	Borrow Cap
Euler yield	eUSDE	60M → 120M	51M → 110M

Rationale:
eUSDe is an ERC4626-standardized token that tokenizes deposits of USDe, the synthetic stablecoin developed by Ethena Labs, into Ethereal’s vault. It maintains a 1:1 redemption ratio and enables instant withdrawals, ensuring minimal friction for users accessing or exiting the position.

The asset has demonstrated robust market traction, with utilization rates for both borrow and supply caps consistently exceeding 70%, reflecting strong organic demand. Furthermore, on-chain behavior shows that top user positions are actively employing looping strategies.

Onchain Circulation: ~1.2B

Base Market

IRM Recommendations

Asset	Kink Borrow APY	Max Borrow APY	Kink
USDC	5% ->4.5%	80% → 40%	90%

Rationale:
Utilization is consistently below kink.

Borrow rates have been staying below 4.5% despite uptrend momentum.

Reducing rate settings could incentivize more looping behavior.

Unichain

IRM Recommendations

For the same reasons stated for Prime Markets, Gauntlet recommends increasing kink for USDC/USDT0 IRM. In addition, Gauntlet recommends increasing the kink borrow rate by 100bps given high utilization.

Asset	Kink Borrow APY	Max Borrow APY	Kink
USDC	5% ->6%	80% ->40%	90%
USDT0	5% ->6%	80% ->40%	90%

Next Steps

• We welcome community feedback

[Objective]

Objective Labs has reviewed @Gauntlet’s monthly risk recommendations. We propose the following amendments:

Keep Euler Prime USDC’s current IRM
Since Gauntlet posted their recommendation utilization in the USDC vault has dropped to ~80%. The recent utilization spikes in USDC were driven by withdrawals rather than increased borrowing activity. We expect this increase to have no material effect in the immediate term, while increasing tail risks if the trend in withdrawals continues. To demonstrate prudent risk management practices mandated by Euler Prime we recommend to reserve this lever when USDC is both larger and more in-demand.

Keep eUSDe’s caps unchanged
Since Aave’s recent onboarding, eUSDe and associated Ethena assets have seen significant outflows, $9M in the past week. All the while, aggregate market risk for a liquidity crunch has increased as Aave now houses over $1B in Ethena-family assets. Therefore we believe this cap increase is likely to be immaterial, while increasing tail insolvency risks for Euler Yield.

We would also like to point out that the proposed eUSDe borrow cap increase runs contrary to our established practice of borrow cap = supply cap * kink position, which would put the number at 102M instead of 110M.

Moderately increase tETH’s caps
In line with our conservative practice of moderate cap increases, we propose that tETH’s caps be increase by 1.5x through CRS. Weekly growth numbers in tETH are positive but not at the pace that warrants a 2x multiplier outside of CRS.

Use CRS for these changes
We propose that these maintenance-level changes continue to go through CRS rather than the standard timelocked governance flow to increase velocity and reduce operational burden for all involved parties.

Net recommendations

To avoid ambiguity we provide the net risk recommendations after our amendments. These will be posted as CRS items shortly.

IRM Recommendations

Market	Asset	Kink Borrow APY	Max Borrow APY	Kink
Euler Base	USDC	5% → 4.5%	80% → 40%	90%
Euler Unichain	USDC	5% → 6%	80% → 40%	90%
Euler Unichain	USDT0	5% → 6%	80% → 40%	90%

Cap Recommendations

Market	Vault	Supply Cap	Borrow Cap
Euler Prime	tETH	12K → 18K	No Change