Gauntlet Guardian - AERO Cap updates (2024-05-15)

Simple Summary

Gauntlet will use Cap Guardian to increase the Supply and Borrow Cap for AERO.

Asset Current Supply Cap Recommended Supply Cap Current Borrow Cap Recommended Borrow Cap
AERO 9,000,000 12,000,000 5,000,000 8,000,000

Gauntlet will be utilizing the Cap Guardian to enact this change as voted by the community within this forum post and proposal.

Supporting Data

AERO Borrowing

Top Suppliers

8 out of the top 10 AERO suppliers have no debt. Amongst the largest borrowers, most user positions continue to supply either stablecoins or ETH correlated assets or both while borrowing AERO.

Top Borrowers

AERO Liquidity

While the current cap updates are supported by substantial levels of liquidity, Gauntlet wants to draw attention to potential risks and ongoing reductions in long-term liquidity resulting from the consistent entry of over 10 million AERO emissions on average into the market every epoch (spanning 7 days), projected to continue for several upcoming epochs. Only a fraction of these emitted AERO tokens are being converted into veAERO, with the average percentage of tokens locked showing a declining trend.

Furthermore, the recent AERO emissions, coupled with downward movements in its price, have significantly influenced the liquidity composition, particularly in the AERO-USDC pool, which is the largest pool for AERO. This pool has predominantly seen an accumulation of AERO relative to USDC through swaps. This might contribute to a decrease in the quality of swaps, resulting in higher slippages. Consequently, liquidations can become less profitable, thereby elevating the risk profile associated with AERO as an asset.

Given the current and future market circumstances, Gauntlet would like to flag risks associated with further substanital increase in AERO caps moving forward.

Quick Links

Please click below to learn about our methodologies:

Gauntlet Parameter Recommendation Methodology
Gauntlet Model Methodology

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