Authorize supply cap adjustments

Temperature Check
1

Summary

This proposal seeks to formally authorize the Liqwid Parameter Committee to adjust supply caps dynamically across all markets in response to evolving risk conditions, liquidity dynamics, and the economic behavior of listed assets.

Supply caps are a key mechanism for managing protocol exposure and ensuring orderly market growth. However, static or infrequently updated caps can lag behind rapidly changing market conditions, particularly in volatile or fast-growing assets. This can lead either to unnecessary constraints on growth or delayed responses to emerging risk.

By enabling a structured and explicitly governed framework for ongoing supply cap management, Liqwid can improve capital efficiency while maintaining strong risk controls.

Motivation

Supply caps must continuously balance two competing objectives: enabling efficient capital formation and limiting exposure to concentrated asset risk.

In practice, token markets evolve quickly. Liquidity conditions, volatility regimes, and user demand can shift materially over short timeframes. When supply caps do not reflect these changes, the protocol may either under-allocate to high-demand markets or maintain excessive exposure to assets whose risk profile has deteriorated.

A more adaptive framework allows supply caps to track real-time market conditions more effectively, improving both protocol responsiveness and overall market efficiency.

Proposed framework

If approved, this proposal authorizes the Liqwid Parameter Committee to adjust supply caps across all listed assets under the following principles:

  • Supply caps may be increased where there is sustained borrower and depositor demand, and where protocol risk capacity supports expansion.

  • Supply caps may be decreased in response to elevated volatility, liquidity deterioration, adverse market structure changes, or increased asset-specific risk.

  • Adjustments must remain consistent with existing governance-approved risk parameters, including collateral frameworks and liquidation conditions.

  • Supply caps should be managed dynamically to reflect current market conditions rather than fixed historical settings.

The Parameter Committee is expected to apply discretion in both the timing and magnitude of adjustments, with the objective of balancing growth and efficiency, while prioritizing risk containment.

Governance safeguards

To ensure alignment with protocol-wide risk management, the following constraints apply:

  • Supply cap adjustments must remain within the bounds of existing governance-approved risk frameworks.

  • All adjustments must be transparently communicated to the community in a timely manner.

Expected benefits

  • Faster response to changing market conditions

  • Improved capital efficiency in high-demand markets

  • Reduced risk concentration in deteriorating or volatile assets

  • More efficient utilization of protocol liquidity

  • Reduced governance overhead for routine parameter maintenance

  • Better alignment between supply-side capacity and real-time market demand

Conclusion

This proposal formalizes a responsive and risk-aware approach to supply cap management. By empowering the Parameter Committee to make timely adjustments within clear governance-defined constraints, Liqwid can better adapt to rapidly evolving market conditions while maintaining strong oversight and protocol safety.

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