Proposal: Adjustment of BTCB Interest Rate Model (IRM) on Venus

Proposals
1

Summary

This proposal recommends updating the Interest Rate Curve for BTCB on Venus Protocol to better align with current market dynamics, promote healthy borrowing activity, and enable optimized looping strategies in preparation for the upcoming launch of E-Mode.

Background

  • BTCB Borrowing Demand: Growing steadily
  • Current Utilization Rate: 13%
  • BTCB Borrowing APY on Venus: 1.18%
  • WBTC Borrowing APY on AAVE (Core Market): 0.65% for similar UR

Despite increased demand, BTCB utilization remains relatively low, partly due to the current shape of the interest rate curve, which may discourage more aggressive borrowing or looping strategies.

Motivation

With E-Mode support for BTCB and correlated assets coming soon, the current IRM curve may not be optimized for:

  • Enabling capital efficiency via looping
  • Attracting sophisticated users and institutional borrowers
  • Competing with other protocols like AAVE that offer more favorable conditions for BTC/wrapped BTC borrowing and looping

Benchmarking with AAVE

AAVE Core Markets (WETH, USDE, WBTC) have shown better optimization for looping strategies by adopting:

  • Higher Kink Points
    • WETH: 94%
    • WBTC: ~80%
    • (Venus BTCB: currently 75%)
  • Lower Interest Rate at Kink
    • WBTC on AAVE: ~4%
    • BTCB on Venus: 6.99%
  • Flatter pre-kink slope
    • To encourage higher utilization before hitting aggressive rates

These optimizations make AAVE more competitive for recursive strategies while still maintaining protocol risk safeguards.

Proposed Adjustment

Adjust the BTCB Interest Rate Model (IRM) to reflect the following parameters:

Parameter Current Suggested
Base Rate 0% 0.25%
Kink Utilization 75% 85–90%
Rate at Kink 6.99% ~4.00%
Max Borrow Rate (APR) 56.7% 50%
Pre-Kink Slope Aggressive Flatter growth
Post-Kink Slope Sharp Gradual, still protective

Exact numerical rates can be discussed further with the Risk team for optimal calibration based on simulations and historical behavior.

Expected Outcomes

  • Encourage higher BTCB utilization
  • Promote looping and capital efficiency ahead of E-Mode
  • Improve competitiveness vs. other lending markets (e.g., AAVE)
  • Balance risk, protocol revenue, and user incentives

Risk Considerations

  • Interest Rate adjustments should be continuously monitored and revised in response to utilization patterns, opportunities, volatility, and external market conditions.
  • Any new IRM should be reviewed and stress-tested by Chaos Labs to ensure protocol solvency and liquidity safety.

Conclusion

Adjusting the BTCB interest rate curve will position Venus to attract more borrowing activity and increase capital efficiency, specially with the upcoming E-Mode. This proposal aims to balance borrower incentives, protocol income, and sustainable utilization.

8 Likes
2

Highly approved

That’s the good direction taken

We should focus on being competitive and not sit on our asses becauze of our tvl on Bsc

Let’s push it fast and wish E-mode coming faster than we can expect

2 Likes
3

end results will be pre-kink at 1% and kink moved .9

TVL gains will be over 600M

2 Likes
4

I think this proposal is perfect, as it will help us attract more users who specialize in loop strategies, and in doing so, we’ll be getting ready for the launch of E Mode.

You can count on my vote.

5

I fully support this proposal to optimize the BTCB interest rate curve. It’s a smart move to align Venus with current market dynamics, boost BTCB utilization, and enhance capital efficiency—especially ahead of E-Mode’s launch.

By adopting a more competitive kink point and pre-kink slope, Venus can attract more sophisticated users and institutional borrowers, making BTCB looping strategies far more viable while still safeguarding protocol risk.

Looking forward to seeing E-Mode go live soon so we can fully unlock these benefits! :rocket:

6

Optimizing BTCB’s interest rate curve is a smart move ahead of E-Mode - it unlocks better capital efficiency, makes Venus more attractive for looping strategies, and keeps the protocol competitive with AAVE. Well aligned with market needs

7

Summary

Chaos Labs supports the initiative to update the Interest Rate Model (IRM) for BTCB. We concur that adjusting the curve is critical to ensure higher capital efficiency, increase effective utilization, and prepare for the upcoming E-Mode launch. Our analysis recommends specific adjustments to the suggested parameters, aligning BTCB borrowing costs with user demand while preserving risk controls.

Overview

Current BTCB borrowing conditions show utilization of approximately 13% with a borrow APY of 1.25%, which is slightly higher than comparable assets on peer protocols.

image - 2025-08-21T150518.828
image - 2025-08-21T150518.8281420×258 18.3 KB

The existing interest rate curve features a relatively steep pre-kink slope and a kink at 75%. This structure can discourage aggressive borrowing or looping strategies, as demand in this market is highly elastic to borrowing costs. Adjusting the pre-kink portion of the curve to reduce borrow rates while maintaining the same kink is intended to encourage higher utilization and improve capital efficiency in advance of the E-Mode launch.

Motivation

Approximately half of all BTCB borrowing is currently collateralized by xSolvBTC and SolvBTC, indicating that looping strategies involving highly correlated BTC-based assets are a major driver of demand. Over the past two months, these strategies have contributed roughly $60M in new BTCB borrowing. This pattern highlights the importance of optimizing the interest rate curve for users engaged in correlated asset loops, as their behavior is highly sensitive to borrowing costs due to the leverage involved.

image - 2025-08-21T150521.724
image - 2025-08-21T150521.724846×574 86.5 KB

IRM Adjustments

The calibrated BTCB interest rate model adjustments are designed to reduce pre-kink borrowing costs and increase utilization without compromising the protective mechanisms that guard against liquidity risk at higher utilization levels. Specifically, we recommend a reduction in the interest rate at kink from 6.99% to 3.00%, in the form of an increase in the base rate from 0% to 0.25% and reducting the multiplier from 9.00% to 3.67% in annual terms. Additionally, we recommend increasing the reserve factor from 20% to 30% to further generate protocol revenue in accordance with observed protocol demand dynamics within the market. The kink and post-kink slope are to remain unchanged.

The rationale for lowering Slope1 is that current BTCB borrowing is heavily driven by looping strategies. For these users, borrowing demand is a direct function of the spread between the underlying APY on collateral assets and the borrow rate of BTCB. By reducing pre-kink slope and introducing a base rate, borrowing costs at lower utilization will decrease significantly, creating more favorable conditions for these strategies and driving an increase in utilization.

Maintaining the kink at 75% reflects that demand in this market is unlikely to reach utilization levels where borrow APRs exceed the collateral supply APYs. The steep post-kink slope is left unchanged to ensure that if utilization were to climb unexpectedly, borrowing costs would increase sharply, incentivizing position unwinding.

image - 2025-08-21T150525.046
image - 2025-08-21T150525.0462884×1424 217 KB

In parallel, the inelastic supply-side demand to the supply rate justifies an increase in the reserve factor to 30%, which will increase protocol revenues by 50% from such a market while only resulting in a 0.015% decrease in supply rate. As BTCB is predominantly used to collateralize stablecoin debt, the effect of supply rate changes on the supply volume is minimal, which is further confirmed by historical data.

image - 2025-08-21T150528.019
image - 2025-08-21T150528.0193452×1730 399 KB

In summary, the proposed changes are expected to stabilize utilization at significantly higher levels, aligning borrow rates more closely with the underlying yields of correlated collateral assets while strengthening protocol reserves. This balance between encouraging demand and safeguarding liquidity risk provides a more sustainable foundation ahead of the E-Mode launch.

Recommendation

Chaos Labs supports the proposed adjustments to the BTCB IRM. The changes are expected to balance borrowing demand, utilization, and protocol risk management by increasing base rate, reducing pre-kink borrowing costs, maintaining the kink at 75%, and increasing the reserve factor. We recommend implementing these changes ahead of the E-Mode launch to enhance capital efficiency while preserving robust risk controls.

Specification

Parameter Current Recommended
Base Rate Annualized 0% 0.25%
Multiplier Annualized 9.00% 3.67%
Rate at Kink 6.75% 3.00%
Kink 75% 75%
Jump Multiplier Annualized 200% 200%
Reserve Factor 20% 30%

Disclaimer

Chaos Labs has not been compensated by any third party for publishing this recommendation.

2 Likes
8

Review and suggestions from Chaolabs is nice and good job

What I would like to adjust would be a more aggressive move on rate at kink which could be even lower so it’s would be even more beneficial for BtcB borrower

While doing so for BtcB market , we would like a reviews of every other market subject to E-mode and Looping strategy

Stablecoin
Ethereum
BNB

Those are asset that need to be reviewed before e-mode launch

Thank you !

2 Likes