LlamaRisk's Aave V3 Risk Stewards recommended a broad set of supply and borrow cap reductions effective May 14, including cutting WBTC supply cap from 39,000 to 31,800, weETH from 1.6M to 1.11M, and PYUSD from 45M to 21M, while also slashing syrupUSDT from 18M to 1.7M. PT-USDG was the notable exception, seeing a cap increase from 80M to 120M. The changes reflect deteriorating on-chain liquidity depth or elevated concentration risk across those assets.
For Armada's crypto repo desk, WBTC cap reductions are directly pertinent: if Aave's risk managers are trimming WBTC exposure due to liquidity or custodian risk concerns, Armada should consider whether WBTC posted as repo collateral warrants a wider haircut than native BTC. The weETH reduction also signals caution on liquid staking derivative collateral, relevant if Armada accepts ETH LST variants. The Fireblocks custody framework does not eliminate the price dislocation risk that prompted these Aave changes.