Add Collateral eBTC on cWETHV3 on Ethereum

Proposals
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Introduction

ether.fi is seeking community support for adding its Liquid Restaking Token eBTC to the cWETHV3 market on Ethereum. In addition, anyone who deposits eBTC will accumulate Babylon, Lombard, Ether.fi, Symbiotic and Veda points as part of ongoing incentive campaigns.

eBTC is Ether.fi’s flagship Bitcoin-backed liquid restaking token. Created to service the growing demands of alternate collateral within restaking, eBTC simplifies yield optimization and expands utility. eBTC is backed by LBTC, through a partnership with Lombard, to bring the first dual yield (staking + restaking) Bitcoin product to market. Staking will be conducted through Babylon, with restaking serviced through a combination of Eigen Layer, Symbiotic, and Karak. Users are able to deposit LBTC, WBTC, FBTC, & CBBTC.

Type: Collateral deployment

Authors: Jozef Vogel, Charles Mountain

Motivation

Mirroring the success of ETH LRTs, eBTC aims to draw active capital onto Compound to participate in the borrowing of WBTC, CBBTC, and other non-yielding BTC wrappers. These users will grow Compound’s deposit base, drive yield to BTC assets, and most importantly generate revenue for the platform.

As of Oct 4th, approximately 2,300,000 ETH ($5.8B) in TVL has been deposited into the ether.fi protocol with 2500 BTC ($150M) dedicated to the eBTC LRT. You can view additional ether.fi stats on Dune.

ether.fi is the first decentralized, non-custodial delegated staking protocol with an LRT (eETH, eBTC). One of the distinguishing characteristics of ether.fi is that stakers control their keys. Those who work on the protocol strive for the following:

  1. Decentralization is the primary objective. ether.fi will never compromise on the non-custodial and decentralized nature of the protocol. Stakers must maintain control of their ETH.
  2. The ether.fi protocol is a real business with a sustainable revenue model.
  3. ether.fi will do the right thing for the Ethereum community, always. If and when the team messes up, ether.fi will own it and course correct quickly.

Risks

eBTC is 1:1 redeemable with LBTC since day 1. Lombard’s risk architecture mirrors that of Wormhole, using a group of independent distributed nodes managed by separate entities for operations and signing. Lombard utilizes native BTC for Babylon staking, and has been peer reviewed by other risk managers as shown here. As mentioned above, ether.fi is also the first LSP to natively restake on EigenLayer, Symbiotic, and Karak — a move that helps improve network efficiency and provides stakers with additional rewards for their network contributions. ether.fi has also launched a series of partnerships with DeFi protocols to incentivize users and drive liquidity for eBTC to various platforms.

Important Links

Next Steps

We invite the community to give their feedback and recommendations for the asset.

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[Gauntlet] - eBTC Risk Recommendations

If the community wishes to onboard eBTC to the WBTC Mainnet Comet, Gauntlet suggest the following risk recommendations:

WBTC Comet

Collateral Supply Cap Collateral Factor Liquidation Factor Liquidation Penalty
eBTC 32 88% 91% 6%

Gauntlet does not recommend adding eBTC to the WETH Comet due to limited WETH liquidity pathways and the capital inefficiency of using a non-correlated asset for leveraged yield positions. We will reconsider eBTC’s inclusion in the WETH Comet if liquidity against WETH improves.

Analysis

eBTC Liquidity

DEX Category TVL (million USD) URL
Curve 6.57 Link
Curve 4.95 Link

Total TVL: 11.53 million

Supply Cap and Liquidation Penalty

Gauntlet recommends setting the caps to align the levels suggested here. We therefore recommend a supply cap of 32 eBTC and a Liquidation Penalty of 6% aligning with previous BTC LRT risk recommendations.

Liquidation Factor and Collateral Factor

Gauntlet recommends aligning the Liquidation and Collateral Factor to that of swBTC on WBTC Comet i.e. 88% CF and 91% LF. eBTC has mostly traded on par with WBTC exhibiting mean reversion behaviour. The maximum deviation from the underlying lies between the +/-2% threshold.

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Withdrawals

eBTC has a 7-day withdrawal period. Etherfi claims most withdrawals will complete well before this maximum window and that this is an additional safety mechanism added by Veda.

Yield Risk

Similar to ETH LRTs, BTC LSTs and LRTs have elevated yields due to points program. Staking and AVS maturity at launch will cause yield shocks and consequentially elevate slippage magnitude and liquidity on DEXs. Gauntlet would like flag this potential risk to the community.

Liquidity Risk

Liquid Restaking Tokens (LRTs) present inherent uncertainties concerning liquidity profiles and associated slashing risks. While LRTs serve to reserve liquidity for instant in-protocol redemptions, withdrawals are constrained by rate limitations imposed by the underlying protocols once the reserve pool is exhausted. This limitation poses a potential challenge to maintaining liquidity availability.

Slashing Risk

Since this Comet involves different staking products, there is risk from a double slashing event.

Points program

Given the prevalence of incentives, we encourage the community to confirm the distribution of points to Compound users. This would enable to attract more TVL and offer competitive rates, enhancing user engagement and protocol growth.

Choice of Oracles

The above recommendations are made keeping Exchange Rate Oracles in mind. We would like to confirm the use of these oracles and get more clarity on the calculation mechanism of these exchange rates.

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