[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
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.