TL;DR - Following analysis and community/expert feedback, adjustments to supply and borrow caps for crucial markets are proposed below, to align with current market conditions. Additionally, a custom market is proposed to be introduced for wstETH in order to set the stage for the ILM launch sequence (which may be coming within the next few weeks).

Background/Context:

Seamless has continued solidifying its position as the #2 largest DApp on Base, recently surpassing 24k users. With consistent growth in transactions and users, adjustments to key market parameters are essential to ensure the platform’s continued success. Additionally, with the pursuit of delivering on the Seamless vision of capital efficiency, core contributors suggest introducing a custom market to help support ILM launch.

Adjusting Market Parameters

Demand for borrowing remains robust across key markets like USDbC, ETH, and cbETH. Borrowing caps are proposed to be adjusted based on community feedback, including insights from experts such as Chaos Labs, and considering broader market liquidity conditions. Continuing the iterative process initiated by SIP-1 (Adjusting Parameters: Increasing Borrow Caps of Existing Markets - #25 by kimkio), Seamless Protocol remains committed to adapting supply and borrow caps to sustain healthy protocol growth and market dynamics.

Introducing a New wstETH Market for ILMs

Aligned with Seamless Protocol’s vision (Vision and Mission - Seamless Protocol) to deliver an all-encompassing and seamless DeFi experience, there has been increasing focus on developing Integrated Liquidity Markets (ILMs). As many have noticed, community contributions to the ILM code has been ongoing and nearing completion (https://twitter.com/SeamlessFi/status/1750924581575991778). With this, a dedicated wstETH market is proposed to optimize collateral parameters for the impending ILM launch.

Key information on the Custom Market:

• Enables optimized collateral parameters for ILM strategy contracts, enhancing capital efficiency with higher LTV and supply caps.
• How does it work
  • The market only accepts a wrapped version of the underlying asset
  • Only governance approved addresses can call the wrap function. These addresses are ILM contracts. Users never interact with this market directly.
  • Can be unwrapped by anyone, so liquidators can still liquidate bad debt in these markets as a last resort if an ILM is misbehaving. ILM strategies rebalance themselves, so liquidation should not occur and only provides an extra layer of protection for LPs. This is why the liquidation bonus is suggested to be higher
  • Prevents borrowing of the collateral, ensuring ILMs can rebalance effectively without market saturation hindering their operations.

Proposal:

As far as market parameter adjustments, the current proposal follows:

[1] Increase borrow caps across the following markets, specifically:

• USDbC - increase to 10,000,000
• WETH (ETH) - increase to 4,000
• cbETH - increase to 1,600

[2] And modify supply caps for the following markets:

• USDbC - decrease to 35,000,000
• WETH (ETH) - decrease to 20,000
• cbETH - increase to 3,200

More analysis on the markets to follow from community/experts.

In regards to the proposal to introduce a custom wstETH (gated wrapped) market, here are the specifications:

• Supply cap: 2000
• LTV: 80%
• LT: 83%
• Liquidation Bonus: 15%
• Isolation Mode: no
• Borrowable: no
• Flashloanable: no
• Collateral Enabled: yes

Resources/References:

ILM Github - https://github.com/seamless-protocol/ilm

ILM specs - https://github.com/seamless-protocol/ilm/blob/main/SPECS.md

How the wrapped wstETH would work - https://github.com/seamless-protocol/ilm/blob/main/src/tokens/WrappedERC20PermissionedDeposit.sol