Yes, that’s quite what i mean when i said the model should account for onchain liquidity.
Your example with Uniswap follow that, but intentionally or not, you selected a place with lowest WBTC liquidity on chain for your example.
Let’s take a look at sushi:
But considering you want to deal with millions i seriously doubt anybody would use just a single pool of liquidity, so here is the same trade on 1inch, routed through several pools:
Of course, telling that on-chain liquidity is only thing we should care was never my intention. I very much encourage using as much data, as available. The only thing i want to say, it shouldn’t be ignored either, as it is not negligble anymore. And volume at DEX is not good enough as ONLY metric, as they hold much more liquidity, than their daily volume is. Especially if we talk about suchi, 1inch pools, where liquididy is incentivised. Daily volume is a small fraction of their liquidity, most of it just sit there without trading. (untill price spike happen)
To make my point really short and simple. If we say:
a) ETH have no problem with liquidations (as shown by your model)
b) WBTC have no problems in converting to ETH (as delivered from onchain liquidity)
Then if A and B is true, than
c) WBTC should have little problems with liquidations also.
Of course, there is additional step and transactional expenses, so it might not be as good as ETH, but certanly not 10 or 20 times worse in liquidity.
That’s not said to say that decreasing CF for WBTC is bad idea. It might be not. I believe after so many X in price some tokens done, lowering risk might be appropriate, even if it’s somewhat enforced on users. I just want you to maybe take a look at your model from outside perspective. Maybe DEXes, should not be just a single daily volume metric, and dex liquidity is not exactly quite same as cex orderbook either.