Recommend increasing the supply cap to 10K cbETH. Over the past couple of months, we have seen cbETH supply increase by almost 20% and the overall market cap increase by 60%. cbETH rolling 10-day volume over the past couple of months has also been trending upwards - further showing that cbETH liquidity is growing. Market impact of cbETH swaps has significantly declined as well, as shown by the chart below. Once the market reaches closer to this updated cap, we will reassess further potential cap increases.
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We wanted to provide a bit more clarity on these recommendations:
Supply cap for cbETH is meant to prevent catastrophic failure of cbETH, and not having sufficient offramps with DEX liquidity. If there is strong confidence that cbETH will not fail due to institutional or systemic failures, a much higher supply cap can be set. Of course, we do not have the visibility to quantify those risks.
The current recs of 10K is purely based on DEX liquidity.
We can increase the cap based on DEX + CEX liquidity, but just noted that most CEX liquidity is from Coinbase, so it’s also implicitly trusting Coinbase.
If we believe Shanghai upgrade will be successful, we can further increase the supply cap. Of course, we cannot quantify this risk, and the community would be betting on a smooth Shanghai upgrade.
If the community is confident in the subjective risks above, a higher cap, such as 20K, is a reasonable starting point.
