Proposal to increase wETH, wBTC and wstETH markets Supply Ceiling and Daily Borrow Limit


This proposal seeks to increase both the supply ceiling and the daily borrow limit parameters of FiRM’s wETH and wBTC markets to 10,000,000 and 2,000,000 DOLA respectively. It also seeks to increase the daily borrow limit of the wstETH market to 2,000,000 DOLA, bringing these three markets to parity.


As part of our ongoing efforts to enhance FiRM attractiveness as a lending platform, the Risk Working Group periodically advises on proposed adjustments to market parameters. These adjustments, which may include changes to daily borrow limits, liquidation factors, and market supply ceilings, are meticulously evaluated by the RWG. The goal is to strike a balance between attracting new users and maintaining the platform’s stability and security.

The wETH and wBTC markets have emerged as a key focus, warranting a reevaluation of their parameters to align with the latest market conditions and risk profiles. While the wETH market has undergone an adjustment to it’s collateral factor and daily borrow limit since it was first launched in December 2022; since its inception in February 2024, the wBTC market has yet to go a parameter adjustment via governance proposal. As of July 9th, 2024, the wBTC and wETH markets are FiRM’s 2nd and 8th most utilized markets respectively, with 2.06MM in deposits and 1.08MM in borrows cumulatively. In total, 13 unique open positions have an average borrow limit of 68%. This figure is in line with our predicted user behavior. There have been 0 liquidations in the wETH market and 1 liquidation in the wBTC market since inception.

The wstETH market on the other hand is currently the most utilized on FiRM, with $8.07MM in TVL and 4.35MM in borrows, from 10 unique positions. 3 of the top 4 positions on FiRM are wstETH positions. In June 2024, the wstETH market had its supply ceiling and daily borrow limit parameters revised, and continued adoption in the market warrant another evaluation. Users have, on average, a borrow limit of 68%. This figure is in line with our predicted user behavior outlined in the original stETH risk assessment document, and in line with our other ETH or ETH-derivative FiRM markets. There have been 0 liquidations in the wstETH market since inception.

Risk Assessment

The “blue chip” nature of wBTC and wETH markets adds an additional layer of confidence to our proposed parameter adjustments. Both wBTC and wETH are highly liquid and consistently amongst the most widely traded crypto assets. Their inherent on-chain liquidity and robust CEX depth provide a strong foundation for increasing supply ceilings and daily borrow limits, to levels even far greater than those suggested below, as it ensures sufficient capacity to handle large liquidations without adversely impacting their market prices. For wstETH to be the same as wETH requires two actions: Unwrap wstETH to stETH, and redeem for wETH via Lido beacon chain staking contract. As such, wstETH carries a very similar risk profile to wETH, at least for the levels being considered on FiRM and discussed in this proposal.

This proposal comes at a time when interest rates on FiRM are low compared to direct competition offering variable-rate lending. Its overall motive is to reduce friction for users who are seeking to refinance to FiRM; to make our platform a more attractive option. Moreover, wBTC, wETH, and wstETH provide solid collateral backing for DOLA, so should lending capacity in these markets be filled, a follow up proposal would shortly follow.

The RWG therefore approves an increase in the supply ceiling for the wBTC and wETH markets from 5,000,000 DOLA to 10,000,000 DOLA. At the same time, the RWG also approves an increase in the daily borrow limit for both markets from 500,000 DOLA to 2,000,000 DOLA. The RWG also approves an increase in the daily borrow limit of the wstETH market to 2,000,000 DOLA. Their respective collateral factors, liquidation factors, liquidation incentives, and minimum debt amounts are recommended to remain unchanged due to their effectiveness in managing risks and maintaining market equilibrium.

These parameter settings are supported by detailed simulations and analyses, which are covered in our Collateral Parameterization Model and Daily Borrow Limit Framework “Behind the Scenes” blog posts. These models consider multiple factors, including supply ceilings, collateral factors, liquidation dynamics against price impact simulations and liquidity pool data to ensure that the proposed settings are robust and resilient under severe market conditions. The interaction between the various market parameter settings are complex and often non-linear. Our in-house models provide valuable insights into these dynamics, enabling us to fine-tune the parameters for optimal performance. When modeling for parameter values, we value above all else that current settings are generally favorable for liquidators. This is crucial as active liquidator participation is essential for the health of the protocol. At the same time, analysis should also suggest that parameters we decide on are such that liquidation cascades are extremely unlikely given present-day on-chain liquidity and competitive markets.

On-Chain Actions

  • Set FiRM’s wETH market’s Supply Ceiling to 10,000,000 DOLA
  • Set FiRM’s wETH market’s Daily Borrow Limit to 2,000,000 DOLA
  • Set FiRM’s wBTC market’s Supply Ceiling to 10,000,000 DOLA
  • Set FiRM’s wBTC market’s Daily Borrow Limit to 2,000,000 DOLA
  • Set FiRM’s wstETH market’s Daily Borrow Limit to 2,000,000 DOLA