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 |