Add Collateral SolvBTC and SolvBTC.BBN on WBTC Market on Mainnet

[catwychan]

Introduction

BTCFi narrative is gaining healthy traction over the past month with successful introduction of various BTC LST protocols such as SolvBTC & SolvBTC.BBN. According to IntoTheBlock’s Bitcoin in DeFi dashboard, 1% of total BTC supply is currently circulating in DeFi. This signals rising interests in BTCFi, thereby presenting an opportunity for leading money markets like Compound to participate in this vertical through an addition of WBTC market.

About Solv Protocol

Solv Protocol is a leading Bitcoin staking platform that leverages SolvBTC to unlock the potential of over $1 trillion in Bitcoin assets. Through a transparent Proof-of-Reserve model, incorporating diverse reserve assets, and enabling access to Bitcoin Liquid Staking Tokens, Solv offers a comprehensive gateway to BTCFi, paving the way for traditional funds to confidently enter the crypto world.

Backed by prominent investors such as Binance Labs, Blockchain Capital, Laser Digital, and others, Solv Protocol stands as a beacon of security and trust. Solv Protocol has undergone extensive security audits by leading firms, including Quantstamp, Certik, SlowMist, Salus, and SECBIT, ensuring the highest standards of safety.

About SolvBTC

SolvBTC, is a token representation of Bitcoin kept in Solv’s Bitcoin Reserves, where it allows Bitcoin liquidity to seamlessly flow across various chains, breaking down inter-chain barriers and providing crucial liquidity infrastructure for the entire BTCFi ecosystem.

Deployed on 10 major networks, including Ethereum Mainnet, BNB Chain, Arbitrum, Avalanche, Base, Merlin, Mantle, BoB, Bitcoin Mainnet and Core, SolvBTC is a key liquidity provider with over 20,000 BTC kept in our reserves. Our robust liquidity has attracted many key players in the DeFi world to partner and build using SolvBTC. Among them include Bitcoin Staking protocol Babylon, Synthetic Dollar Stablecoin Protocol Ethena, and many other projects.

About SolvBTC.BBN

SolvBTC.BBN is a liquid staking token (LST) for Bitcoin, representing the staked Bitcoin in Babylon. SolvBTC.BBN allows Bitcoin holders to earn staking yields, in exchange for sharing $1.3 trillion economic security of Bitcoin with PoS chains, while enabling them the flexibility to participate in DeFi. The market cap for SolvBTC and SolvBTC.BBN are approximately $1.38 billion and $307.8 million, respectively.

Type: Collateral deployment

Motivation

Adding SolvBTC and SolvBTC.BBN as collateral in the WBTC market on Mainnet will offer users enhanced capital efficiency and liquidity, while also promoting broader DeFi participation. By integrating SolvBTC and SolvBTC.BBN, which allow users to continue earning staking rewards while using their staked assets as collateral, Compound can unlock several key benefits:

• Increased Liquidity: Listing SolvBTC and SolvBTC.BBN as collateral will attract liquidity from Bitcoin stakers seeking to optimize their holdings. This will enhance the protocol’s asset pool, contributing to the overall liquidity and stability of the WBTC market.
• Enhanced Capital Efficiency: Users will be able to leverage their SolvBTC and SolvBTC.BBN as collateral to borrow assets, all while maintaining their Bitcoin staking yields. This can lead to more efficient asset utilization and foster a more attractive DeFi ecosystem.
• Potential for User Growth: The introduction of SolvBTC and SolvBTC.BBN has the potential to attract a wider range of users, especially Bitcoin holders who seek flexibility in managing their staked assets. This could result in the expansion of the Compound’s user base.

Important Links

1. Website: https://solv.finance/
2. Documentation: https://docs.solv.finance/solv-documentation
3. Twitter: x.com
4. GitHub: solv-finance · GitHub
5. SolvBTC Address: $60,836.00 | Solv BTC (SolvBTC) Token Tracker | Etherscan
6. SolvBTC.BBN Address: $60,961.00 | SolvBTC Babylon (SolvBTC.BBN) Token Tracker | Etherscan
7. Oracle: SolvBTCYieldTokenCurveRateProvider | Address 0x3A8C69046935c61d6F5568AB6d16Dee43af0edf8 | Etherscan
8. SolvBTC Market Cap: https://www.coingecko.com/en/coins/solv-protocol-solvbtc
9. SolvBTC.BBN Market Cap: Solv App – Decentralized Liquidity Infrastructure
10. Communities: Solv Protocol | Telegram: Contact @SolvProtocol
11. Audits: GitHub - solv-finance/Audit: Audit reports of SOLV Protocol

Next Steps

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

[aaaaaaaaaa]

Hello, aaaaaaaaaa from Dialectic here.

In the past we had a look at solvBTC and found a few things that should be considered:

• Overall poor documentation.
• Part of the codebase has been audited by CertiK, a firm that has allegedly been involved in questionable practices.
• The owner of solvBTC is an EOA (0x55C09707Fd7aFD670e82A62FaeE312903940013E), which has the capability to assign the minter role to any address, allowing for the creation of tokens out of thin air.
• The backing is held in a 3/5 Safe.

[catwychan]

Hi there,

Thank you for your feedback and for taking the time to conduct due diligence on SolvBTC. We value the input from the community and are committed to maintaining the highest standards in transparency, security, and overall protocol robustness.

To address your concerns:

1. Documentation: We acknowledge your concern regarding the documentation and are actively working on improving clarity and accessibility. We are currently in the process of updating our documentation to ensure it is comprehensive and up to date.
2. Audit: We understand the concerns raised about Certik, we’ve had multiple independent audits by others including Quantstamp, SlowMist, Salus, Secbit and Hexagate.
3. EOA with Minter Role: We are aware of the concern. We have transitioned key contract roles, including the minter role, to a multi-signature governance model. We are committed to maintaining a high standard of security and transparency as we continue to grow.
4. WBTC Backing in a 3/5 Safe: We use a Gnosis Safe with a 3/5 multisig for added security when managing our reserves. While this setup is widely regarded as secure in the industry, we are constantly reviewing and enhancing our security practices to ensure the safety of assets. We also plan to move towards further decentralization of custody and management as our ecosystem grows.

We appreciate your diligence and welcome any further questions or feedback you may have. We are fully committed to ensuring that SolvBTC is a secure and reliable product in the DeFi space.

[Gauntlet]

[Gauntlet] - SolvBTC and SolvBTC.BBN Risk Recommendations

If the community wishes to onboard solvBTC on USDC, USDT Comet and solvBTC.BBN to the WBTC Mainnet Comet on Mainnet, Gauntlet suggest the following risk recommendations:

USDC Comet

Collateral	Supply Cap	Collateral Factor	Liquidation Factor	Liquidation Penalty
solvBTC	40	76%	81%	10%

USDT Comet

Collateral	Supply Cap	Collateral Factor	Liquidation Factor	Liquidation Penalty
solvBTC	40	76%	81%	10%

WBTC Comet

Since redemptions are not live, we don’t recommend listing solvBTC.BBN, however, should the redemptions presume we recommend the below risk recommendations for solvBTC.BBN on the WBTC Comet

Collateral	Supply Cap	Collateral Factor	Liquidation Factor	Liquidation Penalty
solvBTC.BBN	18.5	88%	91%	6%

While both SolvBTC and SolvBTC.BBN are present on Arbitrum and Base, Gauntlet recommends holding off their addition to Comets on these chains until market liquidity strengthens.

Analysis

solvBTC Liquidity

DEX Category	TVL (million USD)	URL
Curve	4.43	Link
Uniswap V3	2.95	Link
Curve	2.08	Link
Uniswap V3	1.39	Link
Uniswap V3	1.34	Link
Uniswap V3	0.14	Link

Total TVL: 12.32 million

solvBTC.BBN Liquidity

DEX Category	TVL (million USD)	URL
Uniswap V3	2.95	Link
Curve	2.08	Link
Uniswap V3	1.34	Link

Total TVL: 6.36 million

Supply Cap and Liquidation Penalty

solvBTC/USDC - 5% Slippage

solvBTC/USDT - 5% Slippage

For the USDC and USDT Comet, given the above liquidity sources, we recommend setting the supply cap that would cause 5% slippage i.e half of the liquidation penalty although our methodology allows for higher supply caps. This means that the total slippage should the entire supply get liquidated needs to be < LP. Gauntlet recommends a supply cap of 40 solvBTC (~$2,800,000), this swap would cause a slippage of ~5% vs a liquidation penalty of 10%.

Gauntlet recommends setting the caps to align the levels suggested here. We therefore recommend a supply cap of 18.5 solvBTC.BBN and a Liquidation Penalty of 6% aligning with previous BTC LRT risk recommendations.

Liquidation Factor and Collateral Factor

For SolvBTC, Gauntlet recommends setting the Liquidation Factor (LF) and Collateral Factor (CF) in line with those of tBTC in the USDC and USDT markets, resulting in an LF of 81% and a CF of 76%. SolvBTC currently shows an annualized daily log volatility and a 30-day log volatility of approximately 39%. Given the asset’s nascency, we anticipate these metrics may reflect some degree of noise.

solvBTC/USDC

Gauntlet recommends aligning the Liquidation and Collateral Factor of solvBTC.BBN to that of swBTC on WBTC Comet i.e. 88% CF and 91% LF.

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 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

These recommendations take into account the use of Exchange Rate Oracles for SolvBTC.BBN in the WBTC Comet and Market Rate Oracles for SolvBTC in the USDC and USDT Comets… We would like to confirm the use of these oracles and get more clarity on the calculation mechanism of these exchange rates.

[allthecolors]

Thanks @aaaaaaaaaa and @Gauntlet for providing qualitative and quantitative evidence, respectively, reinforcing my impression that these assets have not reached a level of maturity suitable for the WBTC mainnet market. With appreciation for @catwychan and Solv’s ambitions, if a proposal goes on-chain, I intend to vote against it unless/until the redemption and multisig reserves matters are addressed.