[Anthias Labs] - Minimum Reserves Recommendations

[AnthiasLabs]

[Anthias Labs] - Minimum Reserves Recommendations (6/2/2025)

Introduction

The following report contains recommendations for setting minimum reserves in Moonwell’s Core markets on Base for June. As part of the Anthias Lab’s ongoing partnership with Moonwell, we are committed to delivering monthly updates and proposals to optimize reserve levels, ensuring the protocol remains safe in the face of bad debt.

Methodology

Our goal is to establish minimum reserves proportional to the maximum borrow capacity of a market, defined as the supply cap multiplied by the collateral factor (CF). This metric reflects the maximum potential debt within a given market. For each collateral asset, we assign a reserve coverage ratio based on its overall risk profile. This ratio, expressed as a percentage, represents the minimum reserves relative to the maximum borrow capacity in a market.

To assess the state of reserves given current reserve levels and current supply we have:

As the supply of a market grows over time, and reserves are accrued, we wish to see Current Reserve Coverage Ratio greater than or equal to Reserve Coverage Ratio. This tells us if we have an adequate amount of reserves in a particular market, given the current supply levels.

For each collateral asset we suggest a Reserve Coverage Ratio (RCR), which gives a standardized method for calculating minimum reserves:

This enables us to address the distinct risk profiles of each collateral asset while ensuring a standardized approach to reserve management across all markets. To assign the appropriate RCR for each asset, we perform a risk assessment evaluating multiple factors, including historical price volatility, secondary market liquidity, correlation with underlying assets (where relevant), asset maturity, and exposure to unique tail risks.

Based on this assessment we categorize assets into risk tiers (e.g., low, medium, high), with each tier corresponding to a range of RCRs. For example:

• Low-risk (e.g., highly liquid stables): 0.2%-0.4%
• Medium-risk (e.g., established cryptoassets): 0.4%-1%
• High-risk (e.g., LRTs or volatile gov tokens): 1%-2%

Current Reserves & Recommendations

Asset	Price	Current RCR	Recommended RCR	Current reserves (tokens)	Recommended min reserves (Tokens)	Current reserves (USD)	Recommended min reserves (USD)
WETH	$ 2,540.00	1.29%	0.50%	301.83	403.20	$ 766,648	$ 1,048,320
USDC	$ 1.00	0.61%	0.30%	530,911.48	528,000.00	$ 530,911	$ 528,000
cbBTC	$ 104,326.00	0.26%	0.40%	1.50	5.10	$ 156,489	$ 537,234
AERO	$ 0.52	1.18%	1.20%	211,098.62	546,000.00	$ 109,771	$ 289,380
cbETH	$ 2,794.00	1.02%	0.60%	22.82	77.76	$ 63,759	$ 221,616
wstETH	$ 3,056.00	0.56%	0.60%	20.42	69.98	$ 62,403	$ 218,350
WELL	$ 0.04	2.12%	1.80%	1,216,946.65	1,755,000.00	$ 49,408	$ 70,200
EURC	$ 1.13	0.95%	0.40%	34,359.44	77,088.00	$ 38,826	$ 87,109
weETH	$ 2,713.00	0.67%	1.00%	10.49	31.20	$ 28,459	$ 86,424
LBTC	$ 104,326.00	0.64%	0.60%	0.24	0.48	$ 25,038	$ 51,037
VIRTUAL	$ 2.07	0.99%	1.20%	7,840.58	35,490.00	$ 16,230	$ 73,819
rETH	$ 2,888.00	0.25%	0.60%	2.53	12.17	$ 7,306	$ 35,895
DAI	$ 1.00	14.61%	0.40%	2,673.22	800.00	$ 2,673	$ 800
wrsETH	$ 2,653.00	0.37%	1.00%	0.78	7.40	$ 2,069	$ 20,054
tBTC	$ 104,119.00	0.19%	0.60%	0.02	0.46	$ 2,082	$ 48,383
MORPHO	$ 1.31	0.55%	1.80%	1,015.44	46,800.00	$ 1,330	$ 64,116
USDS	$ 1.00	0.04%	0.40%	5.38	2,490.00	$ 5.38	$ 2,490
Total						$ 1,863,411.56	$ 3,333,423.44

Certain markets, such as cbBTC, weETH, VIRTUAL, rETH, wrsETH, tBTC, MORPHO, and USDS, currently exhibit reserve coverage ratios (RCRs) that fall below our recommended thresholds. This shortfall is partly attributable to the relatively recent introduction of these markets, which has limited the time available for reserve accumulation. Addressing this issue presents challenges, with no straightforward immediate solution. For instance, raising reserve factors has little effect in markets with virtually no borrowing activity, leaving the protocol with few levers to pull to address reserve deficiencies. Subsidizing reserves from higher-performing markets could be a feasible strategy to strengthen these underfunded markets, which, as detailed further below, are among the slowest in accumulating reserves.

Reserve Accrual

We aim to determine the rate at which reserves accumulate from two main sources: borrower interest and liquidations. To estimate the annual reserves from borrower interest, we use the formula:

Here, Total Borrows and Borrow APY reflect current market conditions.

For reserves from liquidations, we rely on historical data on collateral seized over the past year. Using this, we calculate total liquidation incentives and determine the portion allocated to reserves.

Reserves from Borrower Interest

Assets	Price	Total borrowed (token)	Reserve factor	Borrow APY	Estimated reserves from borrower interest (tokens)	Estimated reserves from borrower interest (USD)
WETH	$ 2,540.00	22,794.92	10.00%	1.50%	34.19	$ 86,848.65
USDC	$ 1.00	90,058,323.39	10.00%	4.40%	396,256.62	$ 396,256.62
cbBTC	$ 104,326.00	114.18	5.00%	1.10%	0.06	$ 6,551.57
AERO	$ 0.52	10,165,346.89	30.00%	9.80%	298,861.20	$ 155,407.82
cbETH	$ 2,794.00	110.39	15.00%	0.20%	0.03	$ 92.53
wstETH	$ 3,056.00	192.57	15.00%	0.20%	0.06	$ 176.55
WELL	$ 0.04	15,681,624.03	25.00%	3.90%	152,895.83	$ 6,207.57
EURC	$ 1.13	2,792,045.57	5.00%	4.20%	5,863.30	$ 6,625.52
weETH	$ 2,713.00	33.55	15.00%	0.20%	0.01	$ 27.31
LBTC	$ 104,326.00	9.63	5.00%	1.50%	0.01	$ 753.49
VIRTUAL	$ 2.07	631,036.70	30.00%	12.60%	23,853.19	$ 49,376.10
rETH	$ 2,888.00	23.46	30.00%	0.10%	0.01	$ 20.33
DAI	$ 1.00	22,026.72	100.00%	25.50%	5,616.81	$ 5,616.81
wrsETH	$ 2,653.00	1.57	15.00%	0.00%	0.00	$ 0.00
tBTC	$ 104,119.00	6.22	5.00%	3.60%	0.01	$ 1,165.72
MORPHO	$ 1.31	519,162.09	35.00%	5.30%	9,630.46	$ 12,615.90
USDS	$ 1.00	8,784.80	10.00%	4.10%	36.02	$ 36.02
Total						$ 727,778.50

Reserves From Liquidation Incentives

From 5/31/24 to 5/31/25

Source: IntoTheBlock Risk Radar - Real-time Economic Risk Analysis for DeFi - Stay One Step Ahead

Assets	Collateral seized	Liquidation incentive	Incentive going to liquidators (7%)	Incentive going to reserves (3%)
WETH	$ 17,467,262.11	$ 1,587,932.92	$ 1,111,553.04	$ 476,379.88
USDC	$ 1,537,999.76	$ 139,818.16	$ 97,872.71	$ 41,945.45
cbBTC	$ 3,914,734.69	$ 355,884.97	$ 249,119.48	$ 106,765.49
AERO	$ 8,132,863.45	$ 739,351.22	$ 517,545.86	$ 221,805.37
cbETH	$ 1,675,104.31	$ 152,282.21	$ 106,597.55	$ 45,684.66
wstETH	$ 1,640,290.17	$ 149,117.29	$ 104,382.10	$ 44,735.19
WELL	$ 853,717.96	$ 77,610.72	$ 54,327.51	$ 23,283.22
EURC	$ 245,541.34	$ 22,321.94	$ 15,625.36	$ 6,696.58
weETH	$ 853,044.73	$ 77,549.52	$ 54,284.66	$ 23,264.86
LBTC	$ 828,854.40	$ 75,350.40	$ 52,745.28	$ 22,605.12
VIRTUAL	$ 51,767.48	$ 4,706.13	$ 3,294.29	$ 1,411.84
rETH	$ 132,747.37	$ 12,067.94	$ 8,447.56	$ 3,620.38
DAI	$ 11,059.12	$ 1,005.37	$ 703.76	$ 301.61
wrsETH	$ 56,296.24	$ 5,117.84	$ 3,582.49	$ 1,535.35
tBTC	$ 35,547.43	$ 3,231.58	$ 2,262.11	$ 969.48
MORPHO	$ 802.28	$ 72.93	$ 51.05	$ 21.88
USDS	$ 110.25	$ 10.02	$ 7.02	$ 3.01
Total	$ 37,437,743.09	$ 3,403,431.19	$ 2,382,401.83	$ 1,021,029.36

Combining Both Sources

By summing the estimated annual reserves from borrower interest and the prior year’s liquidation reserves, we can project the total annual reserve accrual, assuming stable market conditions and similar liquidation volume. This offers a view of how long it may take for reserves to meet their minimum levels. We calculate the time to fill, or the estimated number of years required for reserves to reach minimum levels, as:

Assets	Total annual accrual	Reserves needed to reach minimum	Time to fill (years)
WETH	$ 563,228.52	$ 257,479.80	0.46
USDC	$ 438,202.07	$ 0	0
cbBTC	$ 113,317.06	$ 375,573.60	3.31
AERO	$ 377,213.19	$ 174,148.72	0.46
cbETH	$ 45,777.19	$ 153,502.36	3.35
wstETH	$ 44,911.73	$ 151,467.58	3.37
WELL	$ 29,490.79	$ 21,844.97	0.74
EURC	$ 13,322.11	$ 48,283.27	3.62
weETH	$ 23,292.16	$ 56,186.23	2.41
LBTC	$ 23,358.61	$ 25,507.71	1.09*
VIRTUAL	$ 50,787.94	$ 57,234.30	1.13*
rETH	$ 3,640.71	$ 27,834.54	7.65
DAI	$ 5,918.43	$ 0	0
wrsETH	$ 1,535.35	$ 17,562.86	11.44
tBTC	$ 2,135.19	$ 45,708.24	21.41*
MORPHO	$ 12,637.78	$ 59,977.77	4.75*
USDS	$ 39.02	$ 2,484.62	63.67*
Total	$ 1,748,807.86	$ 1,474,796.58

*Some assets have not been listed for a full calendar year, and therefore reserves from liquidations are understated.

Given the total annual accrual is greater than the reserves required to reach minimum thresholds, if funds were continuously redistributed to where they’re needed most it would be possible to fully fill reserves in under a year at current rates. However, this could pose a significant engineering task, and require the Moonwell Foundation to navigate complex regulatory requirements to ensure they do not retain custody of transferred assets. By contrast the Safety Module, holding over $34 M in staked WELL, provides a significant second line of defense, with 30% of WELL available to cover losses beyond reserve capacity. While achieving fuller reserve coverage remains a goal, the Safety Module’s substantial presence means this type of solution is not an immediate priority.

In this recommendation, we do not suggest increasing USDC reserves from their current level, enabling these reserves to be auctioned. As USDC is one of the fastest-growing reserves on Moonwell, a substantial portion can still be auctioned for WELL to fund Safety Module staking rewards. A concern with increasing minimum reserves across the board is that it would effectively pause excess reserve auctions. Halting these auctions would reduce the WELL allocated to Safety Module rewards, potentially discouraging staking and inadvertently lowering overall insurance coverage.

Conclusion

Reserves are projected to grow by more than $1.7 M per year, and the Safety Module holds $10 M in readily deployable capital. Together they give the protocol ample capacity to cover shortfalls. We will continue to monitor reserve levels closely, providing monthly updates and urgent recommendations as needed. Throughout our work with Moonwell, we are committed to refining our minimum reserve framework to keep pace with the evolving DeFi landscape and to safeguard the protocol’s long-term stability.

Legal Disclaimer

Anthias LLC (D.B.A. Anthias Labs) does not provide financial advice. Any information accepted here is accepted on the behest of the protocol/DAO. Anthias Labs is not permitted to give financial advice, and nothing in this documentation should be considered as such. Anthias Labs will not be held liable for any economic or otherwise monetary loss brought about by statements made in this document. This is not financial advice, and any third party reading this document should do its own research into any statement made.

[AnthiasLabs]

[Anthias Labs] - Minimum Reserves Recommendations (7/23/2025)

Introduction

The following report contains recommendations for setting minimum reserves in Moonwell’s Core markets on Base and OP Mainnet for July.

Methodology

Our goal is to establish minimum reserves proportional to the maximum borrow capacity of a market (borrow cap). This metric reflects the maximum potential debt within a given market. For each collateral asset, we assign a recommended reserve coverage ratio (RRCR) based on its overall risk profile. This ratio, expressed as a percentage, represents the minimum reserves relative to the maximum borrow capacity in a market.

To assess the state of reserves given current reserve levels and borrow cap we have reserve coverage ratio (RCR). This represents reserve coverage if borrows were at capacity.

To asses the state of reserves given current reserve levels and current borrows we have current reserve coverage ration (CRCR). It represents reserve coverage given current the current amount borrowed.

As the amount borrowed within a particular market grows over time, and reserves are accrued, we wish to see Current Reserve Coverage Ratio greater than or equal to Recommended Reserve Coverage Ratio. This tells us if we have an adequate amount of reserves in a particular market, given the current amount borrowed.

For each collateral asset we suggest a Recommended Reserve Coverage Ratio (RRCR), which gives a standardized method for calculating minimum reserves:

This enables us to address the distinct risk profiles of each collateral asset while ensuring a standardized approach to reserve management across all markets. To assign the appropriate RRCR for each asset, we perform a risk assessment evaluating multiple factors, including historical price volatility, secondary market liquidity, correlation with underlying assets (where relevant), asset maturity, and exposure to unique tail risks.

Based on this assessment we categorize assets into risk tiers (e.g., low, medium, high), with each tier corresponding to a range of RCRs. For example:

• Low-risk (e.g., highly liquid stables): 0.2%-0.4%
• Medium-risk (e.g., established cryptoassets): 0.4%-1%
• High-risk (e.g., LRTs or volatile gov tokens): 1%-2%

Base

Asset	Borrow Cap (tokens)	Total Borrows	Total Reserves	RRCR	RCR	CRCR
WETH	64,000.00	20,801.36	324.35	0.50%	0.51%	1.56%
USDC	184,000,000.00	82,619,192.98	346,802.43	0.30%	0.19%	0.42%
cbBTC	640.00	153.66	1.65	0.40%	0.26%	1.07%
AERO	25,000,000.00	10,417,930.71	109,871.74	1.20%	0.44%	1.05%
cbETH	6,400.00	65.00	9.61	0.60%	0.15%	14.78%
wstETH	4,800.00	89.02	6.76	0.60%	0.14%	7.60%
EURC	21,000,000.00	4,044,887.08	17,551.14	0.40%	0.08%	0.43%
WELL	75,000,000.00	30,512,934.09	1,287,217.85	1.80%	1.72%	4.22%
VIRTUAL	2,300,000.00	337,082.48	6,102.10	1.20%	0.27%	1.81%
MORPHO	1,000,000.00	510,432.37	2,093.84	1.80%	0.21%	0.41%
weETH	700.00	31.16	6.66	1.00%	0.95%	21.38%
LBTC	38.00	13.94	0.16	0.60%	0.43%	1.16%
tBTC	36.00	3.74	0.02	0.60%	0.05%	0.48%
rETH	900.00	15.68	2.53	0.60%	0.28%	16.12%
wrsETH	430.00	2.21	0.78	1.00%	0.18%	35.34%
cbXRP	500,000.00	151,154.39	218.32	0.60%	0.04%	0.14%
USDS	690,000.00	10,477.34	14.94	0.40%	0.00%	0.14%
DAI	300,000.00	19,228.52	517.66	0.40%	0.17%	2.69%

Asset	Price (7/22/25)	Recommended Min. Reserves (Tokens)	Recommended Min. Reserves (USD)
WETH	$3,766.20	320	$1,205,184.00
USDC	$1.00	552000	$552,000.00
cbBTC	$117,520.88	2.56	$300,853.45
AERO	$0.97	300000	$291,900.00
cbETH	$4,156.31	38.4	$159,602.34
wstETH	$4,537.69	28.8	$130,685.44
EURC	$1.17	84000	$98,364.00
WELL	$0.04	1350000	$56,700.00
VIRTUAL	$1.92	27600	$52,964.40
MORPHO	$2.04	18000	$36,648.00
weETH	$4,029.51	7	$28,206.57
LBTC	$117,520.88	0.228	$26,794.76
tBTC	$116,935.51	0.216	$25,258.07
rETH	$4,290.04	5.4	$23,166.23
wrsETH	$3,940.74	4.3	$16,945.19
cbXRP	$3.56	3000	$10,668.00
USDS	$1.00	2760	$2,760.00
DAI	$1.00	1200	$1,200.00
			Total: $3,019,900.45

Comparing the recommended reserve coverage ration (RRCR) to the current reserve coverage ratio (CRCR), the assets falling short of full coverage are:

• AERO: RRCR = 1.2%, CRCR = 1.05%
• MORPHO: RRCR = 1.8%, CRCR = 0.41%
• tBTC: RRCR = 0.6%. CRCR = 0.48%
• cbXRP: RRCR = 0.6%, CRCR = 0.14%
• USDS: RRCR = 0.4%, CRCR = 0.14%

With MORPHO and cbXRP, this is to be expected as the markets are relatively new and haven’t had sufficient time to accrue reserves. USDS comparatively is a small market with very few borrows, therefore the lack of reserve coverage is rather insignificant. AERO and tBTC are not far off from their marks either. Overall these numbers should not be a cause for immediate concern, as the discrepancies are either minor or attributable to market maturity.

Optimism

Asset	Borrow Cap	Total Borrows	Total Reserves	RRCR	RCR	CRCR
WETH	30000	7840.4733	28.6931	0.60%	0.10%	0.37%
USDC	34000000	9721515.706	53031.98	0.40%	0.16%	0.55%
USDT	18400000	255201.9597	7989.1796	0.40%	0.04%	3.13%
wstETH	1500	71.1064	0.9608	0.80%	0.06%	1.35%
USDT0	8000000	1802079.848	1959.6488	0.50%	0.02%	0.11%
DAI	4500000	383044.1801	911.1639	0.50%	0.02%	0.24%
VELO	20000000	2684084.762	9561.9675	1.50%	0.05%	0.36%
rETH	340	13.3932	0.1204	0.80%	0.04%	0.90%
weETH	220	21.0773	0.1302	1.20%	0.06%	0.62%
wrsETH	160	3.9321	0.0605	1.20%	0.04%	1.54%
OP	650000	127207.9103	409.1301	1.50%	0.06%	0.32%
cbETH	0	0.0002	0	0.80%	N/A	0.00%

Asset	Price (7/22/25)	Recommended Min. Reserves (Tokens)	Recommended Min. Reserves (USD)
WETH	$3,764.13	180	$677,543.40
USDC	$1.00	136000	$136,000.00
USDT	$1.00	73600	$73,600.00
wstETH	$4,534.55	12	$54,414.65
USDT0	$1.00	40000	$40,000.00
DAI	$1.00	22500	$22,500.00
VELO	$0.06	300000	$18,600.00
rETH	$4,287.87	2.72	$11,663.00
weETH	$4,027.44	2.64	$10,632.44
wrsETH	$3,938.58	1.92	$7,562.06
OP	$0.81	9750	$7,858.50
cbETH	$4,154.19	0	$0.00
			Total: $1,060,374.05

Comparing the recommended reserve coverage ration (RRCR) to the current reserve coverage ratio (CRCR), the assets falling short of full coverage are:

• WETH: RRCR = 0.6%, CRCR = 0.37%
• USDT0: RRCR = 0.5%, CRCR = 0.11%
• DAI: RRCR = 0.5%, CRCR= 0.24%
• VELO: RRCR = 1.5%, CRCR = 0.36%
• weETH: RRCR = 1.2%, CRCR = 0.62%
• OP: RRCR = 1.5%, CRCR = 0.32%
• cbETH: 0.8%, CRCR = 0%

The only market that stands out here is WETH, its by far the largest market on Moonwell on OP Mainnet, but lacks the reserve coverage that we would like to see. The other markets either had sufficient coverage that was just recently auctioned off in May or June, are new and haven’t had time to accrue reserves (USDT0), or are minuscule in borrows (cbETH).

Reserve Accrual

The following data is from a 26-day period from 6/12/25 to 7/8/25, it represents the last full period between reserve auctions. We will use this data to approximate annual reserve accrual rates for each market, and provide an estimate on how long it will take reserves to fill to their recommended levels.

Not included: Reserves from OEV

Example, AERO:

Base

From 6/12/25 to 7/8/25 we measured:

• Total Reserve Change (USD): $86,698.75
• From Liquidations (USD): $33,378.12
• From Borrower Interest (USD): $53,320.63

Market	Price (7/8/25)	Total Change (Tokens)	Total Change (USD)	From Liquidations (Tokens)	From Liquidations (USD)	From Borrower Interest (Tokens)	From Borrower Interest (USD)
USDC	$1.00	43918.7989	$43,918.80	15517.396	$15,517.40	28401.4029	$28,401.40
AERO	$0.72	26982.541	$19,292.52	9425.7856	$6,739.44	17556.7554	$12,553.08
cbBTC	$109,066.94	0.0794	$8,659.91	0.0724	$7,899.74	0.007	$760.17
WETH	$2,615.77	2.8419	$7,433.76	0.3962	$1,036.35	2.4457	$6,397.40
VIRTUAL	$1.47	1861.9273	$2,742.62	158.7309	$233.81	1703.1964	$2,508.81
WELL	$0.03	41133.6317	$1,151.74	14818.2323	$414.91	26315.3994	$736.83
weETH	$2,802.29	0.3875	$1,085.89	0.3867	$1,083.63	0.0008	$2.26
MORPHO	$1.40	545.5761	$764.35	1.4471	$2.03	544.129	$762.32
EURC	$1.17	586.1096	$685.75	0	$0.00	586.1096	$685.75
wstETH	$3,157.74	0.1055	$333.14	0.1004	$316.94	0.0051	$16.20
cbXRP	$2.32	125.1357	$289.81	15.4513	$35.79	109.6844	$254.03
LBTC	$109,066.94	0.001	$109.07	0	$5.06	0.001	$104.01
cbETH	$2,884.98	0.0341	$98.38	0.0322	$93.03	0.0019	$5.35
DAI	$1.00	94.7895	$94.79	0	$0.00	94.7895	$94.79
tBTC	$108,506.61	0.0003	$32.55	0	$0.00	0.0003	$32.55
USDS	$1.00	3.5276	$3.53	0	$0.00	3.5276	$3.53
rETH	$2,981.49	0.0005	$1.49	0	$0.00	0.0005	$1.49
wrsETH	$2,742.22	0	$0.00	0	$0.00	0	$0.00

Optimism

• Total Reserve Change (USD): $10,420.98
• From Liquidations (USD): $4,503.66
• From Borrower Interest (USD): $5,917.31

Market	Price (7/8/25)	Total Change (Tokens)	Total Change (USD)	From Liquidations (Tokens)	From Liquidations (USD)	From Borrower Interest (Tokens)	From Borrower Interest (USD)
wstETH	$3,158.46	1.3242	$4,182.43	1.3228	$4,177.94	0.0014	$4.49
WETH	$2,616.02	1.0681	$2,794.17	0.0539	$140.96	1.0142	$2,653.21
USDC	$1.00	2289.5643	$2,289.56	0.3295	$0.33	2289.2348	$2,289.23
USDT0	$1.00	594.2297	$594.23	63.1856	$63.19	531.0441	$531.04
USDT	$1.00	200.9985	$201.00	0	$0.00	200.9985	$201.00
DAI	$1.00	136.4789	$136.48	0	$0.00	136.4789	$136.48
OP	$0.55	214.766	$118.34	155.7975	$85.84	58.9685	$32.49
VELO	$0.05	2051.0582	$94.35	769.6044	$35.40	1281.4538	$58.95
weETH	$2,802.56	0.0017	$4.76	0	$0.00	0.0017	$4.76
wrsETH	$2,742.48	0.0013	$3.57	0	$0.00	0.0013	$3.57
rETH	$2,981.78	0.0007	$2.09	0	$0.00	0.0007	$2.09
WBTC	$108,917.60	0	$0.00	0	$0.00	0	$0.00
cbETH	$2,885.37	0	$0.00	0	$0.00	0	$0.00

Time-to-Fill (TTF)

We calculate the time to fill, or the estimated number of years required for reserves to reach minimum levels, as:

Base

Asset	Reserves Needed to Reach Minimum	Reserve Accrual (annualized)	Time-to-Fill (years)
WETH	0	39.8959	0
USDC	205,197.57	616,552.3692	0.33
cbBTC	0.91	1.1147	0.82
AERO	190,128.26	378,793.3640	0.50
cbETH	28.79	0.4787	60.15
wstETH	22.04	1.4811	14.88
EURC	66,448.86	8,228.0771	8.08
WELL	62,782.15	577,452.9066	0.11
VIRTUAL	21,497.90	26,138.5948	0.82
MORPHO	15,906.16	7,659.0491	2.08
weETH	0.34	5.4399	0.06
LBTC	0.07	0.0140	4.71
tBTC	0.20	0.0042	47.06
rETH	2.87	0.0070	409.03
wrsETH	3.52	0	inf
cbXRP	2,781.68	1,756.7127	1.58
USDS	2,745.06	49.5221	55.43
DAI	682.34	1,330.6988	0.51

Optimism

Asset	Reserves Needed to Reach Minimum	Reserve Accrual (annualized)	Time-to-Fill (years)
WETH	151.31	14.9945	10.09
USDC	82,968.02	32,141.9604	2.58
USDT	65,610.82	2,821.7097	23.25
wstETH	11.04	18.5897	0.59
USDT0	38,040.35	8,342.0708	4.56
DAI	21,588.84	1,915.9538	11.27
VELO	290,438.03	28,793.7017	10.09
rETH	2.60	0.0098	264.54
weETH	2.51	0.0239	105.16
wrsETH	1.86	0.0183	101.89
OP	9,340.87	3,014.9842	3.10
cbETH	0	0	0

Note that the projected time to reach full reserves for certain markets is unrealistically long. This primarily results from basing minimum reserve targets on borrow caps. Markets with low borrow cap utilization may appear to have insufficient reserve accrual based on this metric; however, the ratio of current reserves to current borrow amounts (CRCR) typically indicates healthy reserve levels in these cases. One limitation of this metric is that it assumes a constant rate of reserve accrual. In practice, reserve accumulation can vary significantly from month to month, influenced by fluctuating borrowing volumes and liquidation events. As a market expands, its reserve accrual rate typically accelerates accordingly.

Concerns Regarding Minimum Reserves Based on Borrow Caps

“Basing minimum reserves on under-utilized borrow caps may result in some markets being unable to auction off reserves within a reasonable timeframe, potentially limiting their contribution to the safety staking module.”

While reserve auctions play a critical role in funding the safety staking module, tying minimum reserves to borrow caps addresses a significant issue. Consider a scenario where a market’s borrow cap is at 5% utilization, with a strategy of auctioning off reserves monthly if CRCR exceeds RRCR, reducing the excess to align CRCR with RRCR. At any moment, supply and borrow volumes could rapidly reach full capacity, but reserves accumulate over a longer period. In such cases, inadequate reserve coverage could increase risk and exposure. Thus, the minimum reserve strategy must account for these edge cases to ensure sufficient protection.

In practice, smaller underutilized markets contribute minimally to reserve auctions, with the majority of contributions originating from large markets on Base, such as USDC, WETH, or AERO, where reserves accumulate quickly and minimum requirements are typically met. This approach allows smaller markets to continue accumulating reserves to support future growth while larger markets fund reserve auctions, strengthening the safety module.

Conclusion

The above minimum reserve recommendations, along with the Safety Module, give the protocol ample insurance to cover potential shortfalls. Anthias Labs is committed to refining this minimum reserves framework, monitoring reserve levels closely, and providing monthly updates and urgent recommendations as needed.

[AnthiasLabs]

[Anthias Labs] Minimum Reserve Recommendations (9/8/25) (Base)

Summary

Asset	Recommended Reserves (Tokens)	Recommended Reserves (USD)
WETH	320	$1,405,215.36
USDC	430000	$430,000.00
cbBTC	3	$324,869.57
AERO	130000	$149,110.00
EURC	84000	$98,112.00
cbETH	9	$43,424.39
wstETH	6.6	$35,059.17
MORPHO	18000	$34,668.00
WELL	1200000	$33,600.00
weETH	6	$28,232.30
rETH	4	$20,005.64
LBTC	0.228	$24,702.17
tBTC	0.216	$23,385.28
cbXRP	6000	$16,650.00
VIRTUAL	6000	$6,678.00
wrsETH	1	$4,609.96
USDS	2760	$2,760.00
DAI	900	$900.00
		Total: $2,681,981.82

Methodology

The foundation for informed minimum reserve recommendations begins with the Anthias Liquip Score, which measures the probability of position liquidation within t days. Unlike health factors that simply calculate collateral-to-debt ratios weighted by collateral factor, the Liquip Score recognizes that liquidation risk arises from the complex interplay of asset price movements, correlations, interest rates, and time. The core insight here is that health factors can be misleading. A position with a high health factor may still face significant liquidation risk if it holds volatile assets that are negatively correlated. Conversely, a recursive position that supplies and borrows the same asset can have a health factor near 1 with virtually no liquidation risk. The Liquip Score provides a more accurate assessment of liquidation risk in scenarios with varying asset volatility and combinations of collateral and debt.

To calculate the Liquip Score, we model wallet position returns as a random variable characterized by mean (µ) and variance (σ²). Together, these parameters provide a clear view of the position’s expected performance and risk. The mean µ represents the average daily return for the wallet position, accounting for asset proportions, their historical returns, and daily debt interest rates. Similarly, variance σ² represents the volatility of daily combined returns, factoring in asset proportions, historical returns, and correlations between assets.

Building on these parameters, we compute the Anthias Liquip Score, which provides a probabilistic measure of the likelihood that a wallet’s position value falls below a certain threshold within t days. Our methodology assumes that position value follows a log-normal distribution and that daily returns follow a normal distribution. These assumptions allow us to use geometric Brownian motion, a standard financial modeling tool, to calculate the probability of value dropping below a set threshold within a specified timeframe.

While the Liquip Score provides valuable insights into liquidation probability, we ultimately need to understand the economic impact of these risks. This is where Collateral-at-Risk (CaR) becomes essential. For each lending position, CaR represents the expected value of collateral that will be liquidated within the specified time horizon. The calculation follows a straightforward formula: CaR equals Liquip Score multiplied by Maximum Liquidation Amount.

The Maximum Liquidation Amount uses the minimum of two constraints. First, 110% of total debt value, which accounts for liquidation bonuses that incentivize liquidators to perform liquidations. When liquidators repay a borrower’s debt, they unlock an equivalent value of collateral plus 10%. Second, 50% of total collateral value, which represents the 50% close factor implemented by Moonwell that caps the amount of collateral liquidatable in a single transaction.

Consider an example: a position with $1 million in collateral and $800,000 in debt facing a 10% liquidation probability. The Maximum Liquidation Amount would be the minimum of $800,000 × 1.10 ($880,000) and $1,000,000 × 0.50 ($500,000), which equals $500,000. The resulting CaR would be 10% × $500,000 = $50,000. When positions hold multiple types of collateral, CaR is distributed proportionally across assets based on their relative values within the position. However, since liquidators can choose any proportion of collateral to seize in practice, CaR represents only an approximation.

By summing CaR across all positions, we gain insights into which assets bear the greatest liquidation risk. This aggregation reveals vulnerabilities that individual position analysis cannot capture: the concentration of liquidation risk in specific markets and the potential strain these liquidations could place on DEX liquidity. The most concerning markets are those with high CaR relative to the amount that can be swapped on DEXs under 7% slippage, which represents the liquidator incentive threshold.

The relationship between CaR and available DEX liquidity determines whether liquidations can occur efficiently. We analyze this by simulating large liquidation transactions on DEXs to understand the price impact of selling CaR volumes. Markets with high CaR and correspondingly high slippage pose elevated risk to the protocol. When slippage exceeds liquidation bonuses of 7%, liquidations become unprofitable. This creates dangerous conditions where positions remain underwater despite being eligible for liquidation, potentially leading to bad debt accumulation.

The main scenario that minimum reserves aim to protect against follows a predictable pattern. First, collateral value sharply declines. Then liquidations become unprofitable due to strained DEX liquidity. Finally, bad debt accumulates in the form of whatever asset was borrowed against that collateral. Understanding which assets are borrowed against high-risk collateral reveals the specific vectors through which bad debt can accumulate.

We analyze the distribution of borrowed assets for each type of collateral, identifying the debt assets most exposed to liquidation failures. The critical insight emerges from mapping these collateral-debt relationships. When volatile collateral assets face concentrated liquidation pressure, the borrowed assets become at risk of bad debt accumulation. This analysis identifies which borrowed assets require the largest reserve buffers, as assets frequently borrowed against high-risk collateral need proportionally larger reserves to absorb potential bad debt during market stress events. Below is a snapshot of CaR on September 2, 2025, using Liquip Scores with t=30.

Token	30d CAR USD	CAR Tokens	Positions
AERO	$1,520,236	1391279.57	1,229
USDC	$928,366	928522.31	1,614
CBBTC	$743,745	6.84	767
WEETH	$672,184	146.61	78
WELL	$510,407	19306558.87	307
MORPHO	$458,385	244685.86	222
WETH	$346,313	80.95	1,347
WSTETH	$264,939	51.18	306
CBETH	$224,780	47.80	338
CBXRP	$95,788	34481.82	129
VIRTUAL	$73,655	72827.06	400
TBTC	$50,138	0.46	76
LBTC	$38,716	0.36	83
WRSETH	$17,025	3.79	38
RETH	$12,332	2.53	124
EURC	$8,608	7404.34	230
USDS	$44	44.08	47
DAI	$13	13.24	45

When we input each market’s 30-day CaR into a DEX aggregator, nearly all markets return less than 1% slippage, indicating healthy liquidation conditions. However, two critical exceptions emerge: WELL shows 5.6% slippage and MORPHO shows 8.3% slippage. This elevated slippage approaches or exceeds the 7% liquidation bonus threshold, creating conditions where liquidations could become unprofitable if attempted all at once. However, multiple smaller liquidations are likely able to relieve debt even in extreme scenarios, as DEX pools are arbitraged back to equilibrium between liquidation waves. This natural market mechanism allows liquidators to work through positions gradually while maintaining profitability, reducing the risk of cascading bad debt accumulation. Additionally, conservative collateral factors in these markets increase the buffer between liquidation and bad debt, providing extra protection against sudden market movements and giving liquidators more time to process underwater positions before they become insolvent.

Looking at which assets users borrow when supplying WELL and MORPHO provides the final piece of the puzzle. For WELL collateral, USDC dominates at 87.6% of borrows ($1.38M), followed by EURC at 6.1% ($96K). For MORPHO collateral, WETH leads at 61.8% of borrows ($2.24M), with MORPHO itself representing 20.6% ($747K) in recursive positions, and USDC at 12.1% ($438K).

Based on this analysis, WETH, USDC, EURC, and cbBTC emerge as the most common assets borrowed against these higher-risk markets. The combination of high CaR in WELL and MORPHO markets, their elevated DEX slippage, and the concentration of borrowing in these four assets creates clear reserve allocation priorities. These markets require higher reserve buffers to absorb potential bad debt when liquidations fail due to unprofitable slippage conditions. Therefore, a higher amount of reserves should be allocated to WETH, USDC, EURC, and cbBTC markets in particular, as they bear the greatest exposure to bad debt accumulation during stressed market conditions.

Safety Staking Module

Moonwell’s safety staking module enables users to stake WELL tokens, which can be slashed if the protocol requires funds to cover insolvencies. In return for accepting this slashing risk, users earn yield from staking. The safety staking module receives funding through monthly reserve auctions, where excess reserves are sold for WELL tokens that become staking rewards. Since the safety module provides critical shortfall insurance and reserve auctions incentivize staking, these auctions effectively help secure the protocol against shortfalls.
Reserve auctions create a multiplier effect for insurance coverage. While directly allocating reserves to a market provides 1:1 insurance coverage, auctioning those same reserves monthly attracts stakers who collectively provide nearly 4x the shortfall insurance than current reserves do. A certain amount of reserves should therefore be auctioned off every month to keep staking yields attractive. This achieves two key objectives: it provides shortfall insurance and generates demand for WELL tokens, as users can stake them to earn high yield.
The minimum reserve strategy moving forward takes into account auctioning off a fair amount of reserves while simultaneously prioritizing growth in markets that need it most. This requires careful consideration of reserve accrual rates in each market. For markets targeted for long-term reserve growth, we must ensure auction amounts don’t exceed monthly accruals. This approach allows reserves to grow in these markets while still providing sufficient funds for reserve auctions. The following section details how reserves have grown during August 2025.

Reserve Accrual (8/1/25 - 9/1/25)

Asset	Token Change	From Liquidations	Liquidation %	From Interest	Interest %	USD Change
USDC	107383	59247.3	55.20%	48135.6	44.80%	$107,383.00
cbBTC	0.561	0.501495	89.40%	0.0595048	10.60%	$60,750.69
AERO	24485	6601.3	27.00%	17883.7	73.00%	$28,084.30
WETH	4.9123	2.13518	43.50%	2.77712	56.50%	$21,571.38
weETH	1.0581	0.960807	90.80%	0.0972926	9.20%	$4,978.76
cbXRP	1063.93	853.099	80.20%	210.828	19.80%	$2,952.41
WELL	80699.5	44541.1	55.20%	36158.5	44.80%	$2,259.59
VIRTUAL	1290.89	193.246	15.00%	1097.65	85.00%	$1,436.76
wstETH	0.2242	0.200034	89.20%	0.0241663	10.80%	$1,190.95
EURC	706.834	73.0648	10.30%	633.769	89.70%	$825.58
MORPHO	349.176	34.923	10.00%	314.253	90.00%	$672.51
cbETH	0.1141	0.101825	89.20%	0.0122746	10.80%	$550.52
DAI	338.247	0.10306	0.00%	338.144	100.00%	$338.25
LBTC	0.001	1.72E-05	1.70%	0.000982786	98.30%	$108.34
tBTC	0.0002	3.27E-05	16.40%	0.000167298	83.60%	$21.65
USDS	20.1368	6.67925	33.20%	13.4576	66.80%	$20.14
rETH	0.001	6.23E-05	6.20%	0.000937727	93.80%	$5.00
wrsETH	0.0002	0.0002	100.00%	0	0.00%	$0.92
						Total = $233,147.76

Reserve Auction

Asset	Price	Current Reserves (Tokens)	Recommended Reserves (Tokens)	Recommended Reserves (USD)	Tokens to be auctioned	USD equivalent to be auctioned
WETH	$4,391.30	330.6067	320	$1,405,215.36	0*	$0.00*
USDC	$1.00	471383.8327	430000	$430,000.00	41383.8327	$41,383.83
CBBTC	$108,289.86	2.2165	3	$324,869.57	0	$0.00
AERO	$1.15	145522.9171	130000	$149,110.00	15522.9171	$17,804.79
EURC	$1.17	18655.787	84000	$98,112.00	0	$0.00
CBETH	$4,824.93	9.7275	9	$43,424.39	0.7275	$3,510.14
WSTETH	$5,312.00	6.9866	6.6	$35,059.17	0.3866	$2,053.62
MORPHO	$1.93	2634.9028	18000	$34,668.00	0	$0.00
WELL	$0.03	1397904.724	1200000	$33,600.00	197904.7238	$5,541.33
WEETH	$4,705.38	7.7198	6	$28,232.30	1.7198	$8,092.32
RETH	$5,001.41	2.53	4	$20,005.64	0	$0.00
LBTC	$108,342.83	0.1636	0.228	$24,702.17	0	$0.00
TBTC	$108,265.16	0.0183	0.216	$23,385.28	0	$0.00
CBXRP	$2.78	2132.2173	6000	$16,650.00	0	$0.00
VIRTUAL	$1.11	7779.7733	6000	$6,678.00	1779.7733	$1,980.89
WRSETH	$4,609.96	0.7834	1	$4,609.96	0	$0.00
USDS	$1.00	56.287	2760	$2,760.00	0	$0.00
DAI	$1.00	932.4622	900	$900.00	32.4622	$32.46
				Total = $2,681,981.82		Total = $80,399.37

*= issue with WETH Unwrapper contrcat currently prohibits WETH reserves from being auctioned off.

These minimum reserve recommendations will lead to approximately $80K in collateral to be auctioned off for WELL, which should in turn fund the safety staking module with an additional ~3.5% APY.

Conclusion

The minimum reserve strategy presented here balances two critical objectives: maintaining sufficient reserves to absorb bad debt during market stress events while funding the safety staking module through strategic reserve auctions. Our analysis using the Anthias Liquip Score and Collateral-at-Risk metrics reveals that WETH, USDC, EURC, and cbBTC face the highest exposure to bad debt accumulation, as these assets are predominantly borrowed against higher-risk collateral. Moving forward, we plan to regularly update this framework as market conditions evolve.

[AnthiasLabs]

[Anthias Labs] Minimum Reserve Recommendations (9/18/25) (Base)

Summary

Asset	Recommended Reserves (Tokens)	Recommended Reserves ($)
AERO	130000	$174,720.00
cbBTC	2	$232,941.46
cbETH	9	$45,465.01
cbXRP	6000	$18,516.00
DAI	900	$900.00
EURC	67000	$79,328.00
LBTC	0.2	$23,316.35
MORPHO	6000	$12,366.00
rETH	2	$10,471.01
tBTC	0.2	$23,255.61
USDC	600000	$600,000.00
USDS	2500	$2,500.00
VIRTUAL	10000	$13,600.00
weETH	6	$29,618.59
WELL	1200000	$30,000.00
WETH	320	$1,469,027.20
wrsETH	1	$4,834.48
wstETH	6.6	$36,733.97
		Total: $2,807,593.69

Methodology

Minimum reserves are calculated using an approach that accounts for probable liquidation volumes through Collateral at Risk (CAR) analysis, while considering both the secondary market liquidity of collateral assets and the debt borrowed against them. This methodology ensures reserves are proportional to the actual liquidation risk in the protocol.

For each asset in the protocol, we establish a 5% slippage threshold: the maximum dollar amount that can be swapped for stables before incurring 5% price impact. This represents the practical liquidity limit for liquidations.

The liquidity factor for each asset is derived by comparing the Collateral-at-Risk (CaR) to the 5% slippage threshold:

Asset	Liquidity Factor	Risk Level
WELL	1.166	High - limited liquidity vs CAR
weETH	0.262	Moderate - reasonable liquidity
WETH	0.026	Low - deep liquidity

For each collateral asset, we multiply all debt borrowed against it by that collateral’s liquidity factor:

For each collateral_asset:
    For each debt_asset borrowed against collateral_asset:
        weighted_debt[debt_asset] += collateral_liquidity_factor × debt_amount

This produces a risk-adjusted view of debt where:

• Debt backed by less-liquid collateral relative to CaR (high factor) requires larger reserves
• Debt backed by highly liquid collateral relative to CaR (low factor) requires smaller reserves

The minimum reserves for each asset are then set proportionally to its risk-weighted debt.

Collateral-at-Risk Snapshot

The table below provides a snapshot of Collateral-at-Risk (CaR) on 9/16/25 using the methodology described here.

Token	30d CaR USD	CaR Tokens	Positions
AERO	$1,554,238	1220350.69	1,232
WETH	$1,517,801	335.21	1,300
USDC	$1,295,493	1295752.67	1,539
weETH	$472,204	97.09	74
WELL	$466,736	17892934.88	309
cbBTC	$444,347	3.84	768
wstETH	$228,561	41.65	306
cbETH	$140,030	28.11	333
MORPHO	$133,460	68328.68	217
cbXRP	$99,337	33156.53	134
VIRTUAL	$70,859	57708.47	400
LBTC	$42,168	0.36	83
rETH	$14,305	2.76	124
wrsETH	$14,032	2.94	38
EURC	$5,299	4502.92	226
tBTC	$4,555	0.04	75
USDS	$46	46.06	55
DAI	$21	21.29	43

Monthly Accrual

Reserve accrual from August 17th to September 14th, 2025.

Asset	Token Change	From Liquidations	Liquidation %	From Interest	Interest %	USD Change
AERO	28589.9	9221.99	32.30%	19367.9	67.70%	$34,164.93
cbBTC	0.0139	0.00530781	38.20%	0.00859219	61.80%	$1,605.52
cbETH	0.005	0.00348439	69.70%	0.00151561	30.30%	$25.38
cbXRP	292.229	187.72	64.20%	104.509	35.80%	$892.18
DAI	225.674	0.0549821	0.00%	225.619	100.00%	$225.67
EURC	618.19	73.4054	11.90%	544.785	88.10%	$727.61
LBTC	0.0007	0.0000138469	2.00%	0.000686153	98.00%	$80.92
MORPHO	268.526	8.16433	3.00%	260.362	97.00%	$538.66
rETH	0.0007	0	0.00%	0.0007	100.00%	$3.69
tBTC	0.0001	0.00000679027	6.80%	0.0000932097	93.20%	$11.51
USDC	89103.9	50907.6	57.10%	38196.2	42.90%	$89,103.90
USDS	15.9999	0	0.00%	15.9999	100.00%	$16.00
VIRTUAL	1076.38	42.5872	4.00%	1033.79	96.00%	$1,367.00
weETH	4.5604	4.14519	90.90%	0.415212	9.10%	$22,600.70
WELL	108394	35949	33.20%	72444.8	66.80%	$2,926.64
WETH	2.1497	0.134828	6.30%	2.01487	93.70%	$9,918.33
wrsETH	0.0001	0	0.00%	0.0001	100.00%	$0.49
wstETH	0.0049	0.00176408	36.00%	0.00313592	64.00%	$27.39
						Total: $164,237.39

Reserve Auctions

Asset	Current Reserves ($)	Current Reserves (Token)	Recommended Reserves (Tokens)	Reserves to be Auctioned Off (Tokens)	Reserves to be Auctioned Off (USD)
AERO	$179,327.46	140759.3886	130000	11859.3746	$15,939.00
cbBTC	$257,188.90	2.2202	2	0.2205	$25,681.80
cbETH	$44,868.55	9.0003	9	0.0004	$2.02
cbXRP	$6,504.39	2171.0235	6000	0	$0.00
DAI	$1,083.02	1083.0194	900	338.4477	$338.45
EURC	$22,346.72	18986.1662	67000	0	$0.00
LBTC	$18,989.83	0.1638	0.2	0	$0.00
MORPHO	$5,368.76	2748.9821	6000	0	$0.00
rETH	$13,102.52	2.5304	2	0.5305	$2,777.44
tBTC	$2,118.50	0.0184	0.2	0	$0.00
USDC	$438,380.07	438380.0725	600000	0	$0.00
USDS	$69.54	69.5351	2500	0	$0.00
VIRTUAL	$7,525.21	6128.0247	10000	0	$0.00
weETH	$48,247.55	9.914	6	3.914	$19,321.19
WELL	$38,061.06	1463887.041	1200000	268451.8152	$6,711.30
WETH	$1,503,127.76	331.7719	320	0*	0*
wrsETH	$3,735.71	0.7834	1	0	$0.00
wstETH	$36,250.81	6.6014	6.6	0.0017	$9.46
					Total: $70,780.65

*= an issue with WETH Unwrapper contrcat currently prohibits WETH reserves from being auctioned off.

The next Automated Liquidity Incentive Proposal, scheduled for October 5th, 2025, will auction reserves that are expected to significantly exceed the current $70K estimate as they continue to accrue.

Projected APY for Staked WELL

There is $25M in WELL currently staked, if $70K in WELL is distributed to stakers from reserve auctions this would result in a boosted APY of $70,000/25,000,000 * 12 = 3.36%$. As the actual amount of WELL acquired in auctions is projected to be around $100K, this would result in a boosted APY of 4.5%. Assuming a 4.5% base staking rate, the total APY next month is estimated at approximately 9% (4.5% + 4.5%).