Gauntlet’s BASE/Moonbeam/Moonriver Recommendations (2024-01-30)

DAI recomendations

The DAI supply, around the time the recommendations were made, was approximately 5.5 million DAI on BASE, with on-chain DEX experiencing a 25% slippage of around 475k DAI, which was trending upwards. Today, the figures stand at 4.4 million DAI in circulating supply and 300k DAI for 25% slippage. Gauntlet advised reducing the supply and borrow caps based on the circulating supply and liquidity conditions at that time

DAI Circulating Supply on Jan 31st, 2024

DAI 25pct DEX Liquidity on Jan 31st, 2024

Gauntlet suggests adopting a more staggered risk-off approach for DAI to balance both risk and capital efficiency. With more staggered cap reductions, Moonwell continues to maximize revenue generated from supplying and borrowing these assets while also minimizing risks stemming from liquidity and concentration. Despite the cap changes, DAI remains the third-largest asset by revenue generation

It should also be noted that DAI has a $4.8 billion market cap with significant liquidity on centralized exchanges (CEXs) and other chains. This effectively provides ample opportunities for liquidators to liquidate large positions in DAI Base markets. However, given the deteriorating state of liquidity and circulating supply, Gauntlet suggests a further decrease in caps as mentioned below:

Current Supply Cap Recommended Supply Cap Current Borrow Cap Recommended Borrow Cap
DAI 4,500,000 4,000,000 3,900,000 3,300,000