Compound v3 ETH (Ethereum) cbETH Update (04/03/23)

As a follow up to our previous analysis, we wanted to provide a quick update to the community. Gauntlet recommended increasing supply cap of cbETH from 30k to 40k in a proposal that was executed on 3/14/23.

As seen in the chart below, the cbETH supply cap of 40k was initially maxed out on 3/18/23, and then most recently maxed out again on 3/28/23, in large part due to the increased cbETH supply of the user with address 0xccfa0530b9d52f970d1a2daea670ce58e4176389, who as of 4/2/23 had a cbETH supply of 19.8k, borrow usage of 97%, and accounted for 49% of total cbETH supply and 53% of total ETH borrows.

Gauntlet released this post on 3/23/23 suggesting not to increase the supply cap due to increased concentration risk and decreased liquidity.

Additionally, there are regulatory concerns that could cause a large enough depeg that would lead to the large cbETH supplier to become liquidatable. Despite cbETH/ETH DEX liquidity having recovered recently, as seen in the screenshot below, there’s no guarantee this liquidity will persist, and can be dangerous if the account were to be liquidated, especially given they supplied 19.8k cbETH.

Given the cbETH supply cap often gets maxed out quickly, the community would be unable to decrease the supply cap if it were to be maxed out again.

Despite cbETH supply decreasing today, we still do not recommend increasing the supply cap due to the aforementioned risk factors prior to the Shanghai upgrade.