Gauntlet - Parameter Recommendations for tBTC on v3 USDC Base Comet
Simple Summary
If the community decides to list tBTC on the USDC Comet on Base, Gauntlet recommends the following risk parameters:
| Parameter | Value |
|---|---|
| Collateral Factor | 80% |
| Liquidation Factor | 85% |
| Liquidation Penalty | 10% |
| Supply Cap | 75 |
Analysis
Liquidity
Total: $11.9M
Supply Cap and Liquidation Penalty
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 that the entire supply gets liquidated needs to be < LP. Gauntlet recommends a supply cap of 75 tBTC (~$7,908,900). This swap would cause a slippage of ~5% vs a liquidation penalty of 10%
Liquidation Factor and Collateral Factor
The Maximum drawdown against USDC is 8.9% along with a 30D Log volatility of 53.36%.
tBTC/USDC
cbBTC/USDC
Given the lower liquidity of tBTC ($16M) when compared to cbBTC ($95M), and the similar 30D Annualized Log vol for tBTC/USDC when compared to cbBTC/USDC:
- We recommend CF and LF that are comparable to cbBTC.
- Since the liquidity is significantly lower for tBTC, we recommend a 2x liquidation penalty to that of cbBTC.
- The recommended new CF and LF for tBTC is 80% and 85% with a liquidation penalty of 10%
Bridge Risk
Gauntlet would like to flag that tBTC relies on bridging mechanisms (Wormhole) for minting and redemption, which exposes the protocol to smart contract and systemic risks should the protocol be compromised.
Next Steps
We welcome community feedback.