diff --git a/contracts/tokenManager/MysoTokenManagerArbitrum.sol b/contracts/tokenManager/MysoTokenManagerArbitrum.sol
deleted file mode 100644
index df06686b..00000000
--- a/contracts/tokenManager/MysoTokenManagerArbitrum.sol
+++ /dev/null
@@ -1,88 +0,0 @@
-// SPDX-License-Identifier: GPL-3.0
-
-pragma solidity 0.8.19;
-
-import {MysoTokenManager} from "./MysoTokenManager.sol";
-import {DataTypesPeerToPeer} from "../peer-to-peer/DataTypesPeerToPeer.sol";
-
-contract MysoTokenManagerArbitrum is MysoTokenManager {
-    address internal constant GDAI = 0xd85E038593d7A098614721EaE955EC2022B9B91B;
-    address internal constant GUSDC =
-        0xd3443ee1e91aF28e5FB858Fbd0D72A63bA8046E0;
-    address internal constant GETH = 0x5977A9682D7AF81D347CFc338c61692163a2784C;
-    mapping(address => uint256) public gVolume;
-    mapping(address => uint256) public gVolumeCaps;
-
-    event GVolumeSet(address gToken, uint256 gVolume);
-    event GVolumeCapSet(address gToken, uint256 gVolumeCap);
-
-    error NoGToken();
-
-    constructor(
-        address _mysoIOOVault,
-        address _mysoToken,
-        address _stMysoToken,
-        uint256 _minMysoWeight,
-        address _signer,
-        uint256 _gDaiCap,
-        uint256 _gUsdcCap,
-        uint256 _gEthCap
-    )
-        MysoTokenManager(
-            _mysoIOOVault,
-            _mysoToken,
-            _stMysoToken,
-            _minMysoWeight,
-            _signer
-        )
-    {
-        gVolumeCaps[GDAI] = _gDaiCap;
-        gVolumeCaps[GUSDC] = _gUsdcCap;
-        gVolumeCaps[GETH] = _gEthCap;
-    }
-
-    function setGVolume(address _gToken, uint256 _gVolume) external {
-        _checkOwner();
-        gVolume[_gToken] = _gVolume;
-        emit GVolumeSet(_gToken, _gVolume);
-    }
-
-    function setGVolumeCap(address gToken, uint256 _gVolumeCap) external {
-        _checkOwner();
-        if (gToken != GDAI && gToken != GDAI && gToken != GDAI) {
-            revert NoGToken();
-        }
-        gVolumeCaps[gToken] = _gVolumeCap;
-        emit GVolumeCapSet(gToken, _gVolumeCap);
-    }
-
-    function _isAllowed(
-        bool isMysoIoo,
-        DataTypesPeerToPeer.BorrowTransferInstructions
-            calldata borrowInstructions,
-        DataTypesPeerToPeer.Loan calldata loan
-    ) internal override returns (bool isAllowed) {
-        isAllowed = super._isAllowed(isMysoIoo, borrowInstructions, loan);
-        if (!isAllowed) {
-            return isAllowed;
-        }
-        if (isMysoIoo) {
-            if (
-                loan.collToken == GDAI ||
-                loan.collToken == GUSDC ||
-                loan.collToken == GETH
-            ) {
-                uint256 _newGVolume = gVolume[loan.collToken] +
-                    loan.initCollAmount;
-                isAllowed = _newGVolume <= gVolumeCaps[loan.collToken];
-                if (isAllowed) {
-                    gVolume[loan.collToken] = _newGVolume;
-                }
-            } else {
-                isAllowed = true;
-            }
-        } else {
-            isAllowed = true;
-        }
-    }
-}
diff --git a/contracts/tokenManager/MysoTokenManagerWithCaps.sol b/contracts/tokenManager/MysoTokenManagerWithCaps.sol
new file mode 100644
index 00000000..ae2e15de
--- /dev/null
+++ b/contracts/tokenManager/MysoTokenManagerWithCaps.sol
@@ -0,0 +1,69 @@
+// SPDX-License-Identifier: GPL-3.0
+
+pragma solidity 0.8.19;
+
+import {MysoTokenManager} from "./MysoTokenManager.sol";
+import {DataTypesPeerToPeer} from "../peer-to-peer/DataTypesPeerToPeer.sol";
+
+contract MysoTokenManagerWithCaps is MysoTokenManager {
+    struct CollatCapInfo {
+        address token;
+        uint128 maxPledge;
+    }
+
+    mapping(address => uint256) public collatCaps;
+    mapping(address => uint256) public totalPledged;
+
+    event CollatCapsSet(CollatCapInfo[] collatCaps);
+
+    constructor(
+        address _mysoIOOVault,
+        address _mysoToken,
+        address _stMysoToken,
+        uint256 _minMysoWeight,
+        address _signer,
+        CollatCapInfo[] memory _collatCaps
+    )
+        MysoTokenManager(
+            _mysoIOOVault,
+            _mysoToken,
+            _stMysoToken,
+            _minMysoWeight,
+            _signer
+        )
+    {
+        for (uint256 i = 0; i < _collatCaps.length; i++) {
+            collatCaps[_collatCaps[i].token] = _collatCaps[i].maxPledge;
+        }
+    }
+
+    function setCollatCaps(CollatCapInfo[] calldata _collatCaps) external {
+        _checkOwner();
+        for (uint256 i = 0; i < _collatCaps.length; i++) {
+            collatCaps[_collatCaps[i].token] = _collatCaps[i].maxPledge;
+        }
+        emit CollatCapsSet(_collatCaps);
+    }
+
+    function _isAllowed(
+        bool isMysoIoo,
+        DataTypesPeerToPeer.BorrowTransferInstructions
+            calldata borrowInstructions,
+        DataTypesPeerToPeer.Loan calldata loan
+    ) internal override returns (bool isAllowed) {
+        isAllowed = super._isAllowed(isMysoIoo, borrowInstructions, loan);
+        if (!isAllowed) {
+            return isAllowed;
+        }
+        if (isMysoIoo) {
+            uint256 _newPledged = totalPledged[loan.collToken] +
+                loan.initCollAmount;
+            isAllowed = _newPledged <= collatCaps[loan.collToken];
+            if (isAllowed) {
+                totalPledged[loan.collToken] = _newPledged;
+            }
+        } else {
+            isAllowed = true;
+        }
+    }
+}
diff --git a/test/peer-to-peer/local-tests-tokenmanager.ts b/test/peer-to-peer/local-tests-tokenmanager.ts
index 0350cadc..a7fb47c0 100644
--- a/test/peer-to-peer/local-tests-tokenmanager.ts
+++ b/test/peer-to-peer/local-tests-tokenmanager.ts
@@ -393,5 +393,80 @@ describe('Peer-to-Peer: Local Tests', function () {
       expect(preBalTokenManager.sub(postBalTokenManager)).to.be.equal(postBalDeployer.sub(preBalDeployer))
       expect(postBalTokenManager).to.be.equal(0)
     })
+
+    it('Should process caps correctly', async function () {
+      const {
+        deployer,
+        borrower1,
+        borrower2,
+        addressRegistry,
+        borrowerGateway,
+        quoteHandler,
+        mysoTokenManager,
+        iooVault,
+        usdc,
+        myt,
+        stmyt,
+        iooOnChainQuote
+      } = await setupTest()
+
+      // deploy token manager with pledge caps
+      const MysoTokenManagerWithCaps = await ethers.getContractFactory('MysoTokenManagerWithCaps')
+      const collatCaps = [{token: usdc.address, maxPledge: ONE_USDC.mul(10000)}]
+      const mysoTokenManagerWithCaps = await MysoTokenManagerWithCaps.connect(deployer).deploy(iooVault.address, myt.address, stmyt.address, 0, ethers.constants.AddressZero, collatCaps)
+      await mysoTokenManagerWithCaps.deployed()
+
+      // whitelist new myso token manager
+      await addressRegistry.connect(deployer).setWhitelistState([mysoTokenManager.address], 0)
+      await addressRegistry.connect(deployer).setWhitelistState([mysoTokenManagerWithCaps.address], 9)
+
+      // borrowers approves gateway
+      await usdc.connect(borrower1).approve(borrowerGateway.address, MAX_UINT256)
+      await usdc.connect(borrower2).approve(borrowerGateway.address, MAX_UINT256)
+
+      // borrow initiation
+      const collSendAmount = ONE_USDC.mul(4000)
+      const expectedProtocolAndVaultTransferFee = 0
+      const expectedCompartmentTransferFee = 0
+      const quoteTupleIdx = 0
+      const callbackAddr = ZERO_ADDRESS
+      const callbackData = ZERO_BYTES32
+      const borrowInstructions = {
+        collSendAmount,
+        expectedProtocolAndVaultTransferFee,
+        expectedCompartmentTransferFee,
+        deadline: MAX_UINT256,
+        minLoanAmount: 0,
+        callbackAddr,
+        callbackData,
+        mysoTokenManagerData: ZERO_BYTES32
+      }
+
+      // check 2 borrows should work
+      borrowInstructions.mysoTokenManagerData = ZERO_BYTES32
+      await borrowerGateway
+      .connect(borrower2)
+      .borrowWithOnChainQuote(iooVault.address, borrowInstructions, iooOnChainQuote, quoteTupleIdx)
+      await borrowerGateway
+      .connect(borrower2)
+      .borrowWithOnChainQuote(iooVault.address, borrowInstructions, iooOnChainQuote, quoteTupleIdx)
+      await expect(borrowerGateway
+      .connect(borrower2)
+      .borrowWithOnChainQuote(iooVault.address, borrowInstructions, iooOnChainQuote, quoteTupleIdx)).to.be.revertedWithCustomError(mysoTokenManagerWithCaps, "NotAllowed")
+
+      // set cap higher
+      const newCollatCaps = [{token: usdc.address, maxPledge: ONE_USDC.mul(12000)}]
+      await mysoTokenManagerWithCaps.setCollatCaps(newCollatCaps)
+
+      // now borrow works again
+      await borrowerGateway
+      .connect(borrower2)
+      .borrowWithOnChainQuote(iooVault.address, borrowInstructions, iooOnChainQuote, quoteTupleIdx)
+    
+      // next one fails again
+      await expect(borrowerGateway
+        .connect(borrower2)
+        .borrowWithOnChainQuote(iooVault.address, borrowInstructions, iooOnChainQuote, quoteTupleIdx)).to.be.revertedWithCustomError(mysoTokenManagerWithCaps, "NotAllowed")  
+    })
   })
 })