[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
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.
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.