TL;DR:

• Deleveraging events move high risk loans below $10B

• Liquidations high at $21M due to volatility

• Plasma mainnet becomes stablecoin blackhole

• Duration risks high but trending down

• Featured: Sentora Euler Cluster

Risk Pulse and Radar Highlights Stablecoin Supply Drops

Source: Aave Risk Radar

Source: Euler Risk Radar

• With the Plasma mainnet launch on Sept 25, Ethereum has seen a large decrease in stable supply in lending markets

• Around $1.5B in stables has been withdrawn from the largest Aave and Euler markets alone

• While most is going back into the same protocols on Plasma, the supply shock has implications for positions on mainnet explained further below

Current Event Risks

Unstaking Queue Trending Down

Duration risk has continued to be a hot topic in the DeFi ecosystem. As highlighted in a previous post and with Kiln unstaking all their ETH as a preventative measure post their exploit, the unstaking queue for exiting staked ETH positions has skyrocketed to over 45 days on September 10.

Source: Validator Queue

Fortunately since its all time high, the exit queue wait time has been slowly decreasing for the last several weeks. While the wait time is still high, adding duration risks for all leverage (re)staking positions across DeFi, the decreasing queue time means that the risks to the entire ecosystem are slowly coming down as well. Any new upticks to the wait time should be monitored closely to evaluate its impact on leveraged positions across DeFi.

Plasma Effect: Ethereum Mainnet Liquidity Crunch

Source: Defillama

Plasma has been effectively a blackhole for stablecoins since its launch 5 days ago. It has already attracted $6B in stables and is poised to increase in the coming weeks. Much of this is due to their large incentives campaign that is providing additional yields across all of the large protocols.

Much of the liquidity that has been directed to Plasma has come from Ethereum mainnet. As mentioned in the previous section, this has led to a substantial drop in liquidity lending markets on Ethereum. With less supply liquidity in lending markets, this increases two connected risks:

• Locked supply TVL due to whale exits

• Borrow rate volatility due to tighter liquidity

Source: Aave Risk Radar

• If whales decide to exit Ethereum stablecoin markets, utilization rates will spike enough to push markets over their kink

• This will spike borrow rates more easily, which could make highly leveraged positions more prone to liquidation if they are not closely monitored

• Exiting whales also mean that users supplying liquidity could have a harder time withdrawing in full which can have implications for users on their overall strategies

Feature: Sentora Euler Cluster

Sentora has recently launched its first curated vaults in Euler that focus on stablecoin liquidity. With several strategy options already integrated into Euler’s Strategy tab, the vaults and strategies choices will continue to grow with the growth of liquidity.

Source: Euler Risk Radar

As with all vaults on Euler v2 on Ethereum, users can track risk indicators through the Euler Risk Radar to monitor the health and risk metrics of each of the vaults in the cluster.

Source: Euler Risk Radar

• Monitor whales and their activity to understand movements and trends

• Follow pattern behavior to evaluate how it could impact your deployed strategy

Source: Euler Risk Radar

• Track health factors of borrow positions and their estimated time to liquidation to evaluate liquidation and bad debt risks in the vaults

• Real time alerts can be found for these vaults in the Euler Pulse feed allowing users to stay on top of all vault movements

Stay informed, manage risks wisely, and stay liquidDisclaimer: This newsletter is for informational purposes only and should not be considered financial advice.