Summary
Gauntlet recommends the following risk parameter changes to WBTC markets:
| Asset | Comet/Market | Parameter | Current | Recommended |
|---|---|---|---|---|
| WBTC | USDC Mainnet | Liquidation Penalty | 5% | 10% |
| WBTC | USDT Mainnet | Liquidation Penalty | 5% | 10% |
| WBTC | WETH Mainnet | Liquidation Penalty | 5% | 10% |
| WBTC | USDC OP | Liquidation Penalty | 5% | 10% |
| WBTC | USDT OP | Liquidation Penalty | 5% | 10% |
| WBTC | WETH Arb | Liquidation Penalty | 5% | 10% |
| WBTC | USDC Arb | Liquidation Penalty | 8% | 10% |
| WBTC | USDC.e Arb | Liquidation Penalty | 8% | 10% |
| WBTC | USDC Mainnet | Supply Cap | 18,000 | 10,000 |
| WBTC | USDT Mainnet | Supply Cap | 18,000 | 5,000 |
| WBTC | USDC.e Polygon | Supply Cap | 750 | 400 |
| WBTC | WETH Arb | Supply Cap | 1,200 | 1,000 |
| WBTC | USDC Arb | Supply Cap | 2,000 | 1,000 |
| WBTC | USDT Arb | Supply Cap | 1,200 | 1,000 |
| WBTC | USDC.e Arb | Supply Cap | 300 | 200 |
| WBTC | Eth V2 | Borrow Cap | 250 | 100 |
Analysis
Following BitGo’s announcement of custodial changes for Wrapped Bitcoin (WBTC) to BiT Global, there has been heightened concern around the custodial setup surrounding WBTC where BiT Global was initially allotted 2 keys of the multi-sig. BitGo has since revised the custodial setup with BitGo (US) and BitGo (Singapore) having 2 of the 3 keys with each organization holding 1 key in different jurisdictions. Despite these structural changes, questions pertaining to auditing, transparency, and the broader role of BiT Global within this joint venture need more clarity. At this current time, one can verify proof of reserve for WBTC on-chain, but there are still open questions about the reliability of audits.
Currently, there’s a buffer of over 35 days before any of the above changes materialize. So far, there’s only a 0.76% reduction in the monthly change of WBTC Supply, indicating no drastic response from the market in relation to WBTC. The chart below showcases the circulating WBTC across chain ecosystems served by Compound. There have not been any drastic changes in circulating WBTC since July 1st 2024.
Circulating WBTC Supply
WBTC represents $500M of collateral within Compound and is an integral token within Compound and the overall Defi ecosystem. 80% of WBTC is collateralized on the USDC Ethereum Comet. Gauntlet recommends adopting risk-off parameters to reduce WBTC exposure but does not suggest deprecating or limiting its growth. Instead, Gauntlet advises exploring other BTC derivatives to diversify risk and attract new market participants. Listing recommended tBTC could expand BTC derivative collateral options on Compound.
Supply of WBTC on v3 Comets
The Supply Cap usage has been relatively underutilized within the Comets. We are recommending lowering underutilized WBTC supply caps while still maintaining a 25%+ buffer for each market to ensure these recommendations are not curtailing growth to the protocol.
Supply Cap and Usage
Gauntlet recommends increasing the liquidation penalty for each WBTC market to 10%. As detailed in our Compound v3 liquidation mechanism analysis, the liquidation penalty determines the collateral returned to borrowers when a position is liquidated. Raising the penalty to 10% would enhance liquidator incentives and provide a larger insolvency buffer, better protecting the protocol if WBTC deteriorates following the transfer of custodianship.
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