Add Market WBTC on Mainnet

[Gauntlet] - WBTC Comet Recommendations

Gauntlet recommends initializing a WBTC Comet on Mainnet with the below collaterals and risk parameters:

Collateral Supply Cap Collateral Factor Liquidation Factor Liquidation Penalty
uniBTC 9 82% 87% 10%
swBTC 13 88% 91% 6%
LBTC 37 88% 91% 6%

We do not recommend initializing the following assets due to their lack of DEX liquidity:

  • pumpBTC

Comet Parameters

Storefront Price Factor: 70%

Gauntlet recommends keeping the Store Front Price Factor at the same value as the Ethereum v3 WETH Comet.

Target Reserves: 250

After Gauntlet’s forum post analyzing Target Reserves, Gauntlet recommends the following Target Reserves.

Initial Reserves: 2

Analysis

uniBTC Liquidity

Dex Category TVL (mil) Link
uniswap_v3 3.53 Link

Total TVL : 3.53M

swBTC Liquidity

Dex Category TVL (mil) Link
curve 3.46 Link
pancakeswap-v3-ethereum 0.24 Link

Total TVL : 3.66M

LBTC Liquidity

Dex Category TVL (mil) Link
uniswap_v3 10.40 Link
curve 0.26 Link

Total TVL : 10.66M

pumpBTC Liquidity

Dex Category TVL (mil) Link
curve 0.01 Link

Total TVL : 0.01M

Given the low liquidity for pumpBTC across the market we don’t recommend listing it currently and will review this collateral again in future.

Supply Cap and Liquidation Penalty

Given the varied nature of growth across the above BTC-pegged assets and the outstanding liquidity available, Gauntlet recommends setting the caps at 20% of the available TVL for assets with withdrawals enabled and 15% of the available for assets with withdrawals disabled in order to both, capture the upside while also mitigating concentration risk. Due to concentrated nature of liquidity, the slippage tolerance would be pretty low for the suggested cap amounts. Given the precedence of WETH comet for correlated assets, we recommend an LP of 6% across assets with withdrawals enabled and 10% across those with withdrawals disabled. We will continue to monitor withdrawal capabilities and the liquidity of BTC-pegged assets, adjusting liquidation penalties as necessary.

Liquidation Factor and Collateral Factor

The nascency of market and exchange rate data exhibits high noise in determining suitable parameters for Liquidation and Collateral Factor. Gauntlet recommends aligning these parameters to the most conservative parameters across LRTs on the WETH Comet. We therefore recommend a CF of 88% and an LF of 91%. For uniBTC, we recommend a CF of 82% and an LF of 87%, should the withdrawals be enabled, Gauntlet would further revise the parameters to better reflect risk profile of the asset.

uniBTC/WBTC returns

swBTC/WBTC returns

LBTC/WBTC returns

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

Liquidity 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 to both assets.

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 the getRate() functions.

IR Curve parameters

Gauntlet is aligning the interest rate (IR) parameters for the WBTC Comet with those of the WETH Comets. The supply APY at the kink is set to double the rate typically seen in other lending markets, while the borrow APY is set at 2.19%. Given the novelty of this market, we’ve chosen an 85% kink to ensure a smoother rate gradient, promoting market balance and potentially attracting borrowers seeking higher APYs. This strategic adjustment should support market stability and adapt to the anticipated demand dynamics.

Parameter Recommended Value
Annual Supply Interest Rate Base 0
Annual Supply Interest Rate Slope Low 0.012
Supply Kink 0.85
Annual Supply Interest Rate Slope High 1
Annual Borrow Interest Rate Base 0.01
Annual Borrow Interest Rate Slope Low 0.014
Borrow Kink 0.85
Annual Borrow Interest Rate Slope High 1.15

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Considering the market equilibrium assumption of reaching 85% utilization, the following chart forecasts annualized reserves corresponding to various borrowing amounts. At $300k borrowed, the Comet would generate annual reserves of $3500. We believe these values will tend to grow more as result of increasing liquidity followed by increasing supply caps.

download (5)

Comp Rewards

Due to the novelty and the current Borrowing capacity of this comet, we recommend setting COMP rewards low. Gauntlet will continue to monitor the incentives and calibrate them depending on market conditions.

COMP Type COMP
Supply Rewards 1
Borrow Rewards 0

download (6)

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