Proposal: Create new Pendle’s PT-solvBTC.BBN Isolated Pool on BNB Chain

This proposal is co-authored by Pendle Finance and Solv Finance.

Rationale

BTCfi narrative is gaining healthy traction over the past month with successful introduction of various BTC LST protocols such as SolvBTC. According to IntoTheBlock’s Bitcoin in DeFi dashboard, ~1% of total BTC supply is currently circulating in DeFi. This signals rising interests in BTCfi, thereby presenting an opportunity for leading money markets like Venus to participate in this vertical through an Isolated Pool.

We believe PT-SolvBTC.BBN is the best suited asset as the first collateral of this newly created Isolated Pool as SolvBTC.BBN has proven traction on the BNB chain. SolvBTC.BBN represents SolvBTC staked in Babylon. Currently, there’s total supply of 3687 SolvBTC.BBN (approximately $245m liquidity) on the BNB chain.

In addition to above, this proposal is built upon previous success of adding Pendle’s PT-weETH into Liquid Staked ETH Isolated Pool on Ethereum which currently contributes ~$5m liquidity to Venus. Similarly, through supporting Pendle’s BTC Principal Tokens (PT) as collateral, Venus Protocol can capture borrowing demand from this rising BTCfi narrative.

Proposal Summary

  • Create new Pendle PT-BTCfi Isolated Pool with PT-SolvBTC.BBN as its first collateral on BNB chain
  • Delegate full discretion for Venus’s risk managers to decide risk parameters such as collateral factors and appropriate supply cap for PT-SolvBTC.BBN
  • A separate proposal will be submitted to seek Venus DAO approval in the future if there’s suitable collateral to add into this Isolated Pool

Motivation

  • Venus currently has massive idle BTCB liquidity in its Core Pool. Total supply is ~$640m while utilisation is only 10%. Creating a separate Isolated Pool for BTCB depositors will enable higher deposit APYs and generate higher borrowing revenue for Venus.

  • The newly launched PT-SolvBTC.BBN market on Pendle has seen positive traction, successfully accruing ~$50m of TVL within a month with PT Fixed APY hovering around ~6%. The difference between PT’s Fixed APY and current BTCB borrowing APY of ~1% indicates there’s substantial margin for users to profitably leverage loop PT-SolvBTC.BBN through Venus.

  • Venus DAO has recently passed VIP to add SolvBTC as collateral to Core Pool. This is a vote of confidence for SolvBTC as collateral asset and this proposal seeks to build on Solv team’s proposal and introduce PT-SolvBTC.BBN (which is an LST of SolvBTC deposited into Babylon) as collateral in the newly created Isolated Pool. (https://app.venus.io/#/governance/proposal/387?chainId=56)

What is Pendle

The Pendle protocol enables permissionless tokenization and trading of yield. Pendle allows anyone to purchase assets at a discount, obtain fixed yield, or long DeFi yield. The protocol enables this by taking yield-bearing tokens and then splitting them into their principal and yield components, PT (principal token) and YT (yield token) respectively, which allows them to be traded via Pendle’s AMM.

Pendle brings the TradFi interest derivative market into DeFi. In traditional finance, interest rate swaps are the biggest market in the world at >$500T. PT is the equivalent of zero-coupon bonds while YT is the equivalent of coupon payments. Pendle is positioning itself to become a core infrastructure for on-chain yield trading.

Principal Tokens Mechanics

PT is a non-rebasing token. PT represents the principal portion of the underlying asset and can be redeemed 1:1 for the underlying asset at maturity. Since the yield component (staking/restaking rewards and points accrual) has been separated, PT can be acquired at a discount compared to the underlying asset. The value of PT will approach and ultimately match the value of the underlying asset on maturity.

Due to its mechanics, the value of PT is tightly correlated with the value of its underlying asset. At maturity, the price of 1 PT is equivalent to 1 underlying asset.

Details on how PT is minted can be found here: https://docs.pendle.finance/ProtocolMechanics/YieldTokenization/SY

Details of PT Oracle can be found here:

https://docs.pendle.finance/Developers/Oracles/IntroductionOfPtOracle

Details of using PT as collateral in Money Markets can be found here:

Security and Audit

Pendle smart contracts have been audited by Spearbit, Chain Security, Ackee, Dedaub, Dingbats, and some of the top wardens from Code4rena. All of Pendle’s smart contracts are open source.

The complete list of audit reports can be found on our Github repo:

https://github.com/pendle-finance/pendle-core-v2-public/tree/main/audits

Other References

Money markets such as Morpho, Silo, Dolomite and Timeswap have already supported various Pendle PT tokens as collateral. Collectively, there’s more than $170m worth of Pendle’s PT tokens deployed as collateral across these money markets.

Additional Information

PT-SolvBTC.BBN Token Address: 0x541b5eeac7d4434c8f87e2d32019d67611179606

Website: https://app.pendle.finance/trade/markets

Github: https://github.com/pendle-finance/pendle-core-v2-public

Twitter: https://x.com/pendle_fi

4 Likes

I find this proposal interesting because, as mentioned, we are seeing significant growth in the BTCfi narrative, and from my point of view, this is becoming a great opportunity for protocols to explore and enter this ecosystem. Another aspect that catches my attention is that, according to data from IntoTheBlock, approximately 1% of the total Bitcoin supply is circulating in DeFi. So, from this perspective, there is still a large market to be tapped into, and it’s great to see Venus also venturing into this. I agree that this isolated market should be enabled in Venus. :+1:

2 Likes

Create new Pendle’s PT-solvBTC.BBN Isolated Pool on BNB Chain is an amazing proposal. Let’s embrace the BTCFi wave!!

1 Like

now there is an extensive trend of liquid staking tokens, I think such tokens should be introduced into isolated pools to minimize protocol risks, I will support this proposal.

Overview

Chaos Labs supports the listing of PT-SolvBTC.BBN in a new BTC-correlated isolated pool on BNB Chain. Our analysis and recommendations are provided below.

PT-SolvBTC.BBN

PT-SolvBTC.BBN is the Pendle principal token related to deposits of SolvBTC.BBN, itself representing deposits of SolvBTC staked in Babylon. SolvBTC is a BTC-pegged asset backed primarily by BTCB; it has previously been evaluated by Chaos Labs and listed on Venus. This ultimately results in four levels of smart contract risk: BTC wrapped to BTCB (or WBTC, cbBTC, etc.), then wrapped to SolvBTC, then staked as SolvBTC.BBN, then deposited in Pendle. While the risks of the first two steps have been evaluated previously and deemed acceptable, we more closely examine the latter two steps below.

SolvBTC.BBN

SolvBTC.BBN represents SolvBTC staked in the Babylon ecosystem, which uses Bitcoin to secure PoS networks. Deposits are incentivized with Babylon points, thus far it has attracted a TVL of $700M. Liquidity on BNB Chain is concentrated on two PancakeSwap pools, with $2.77M SolvBTC paired against $2.5M SolvBTC.BBN in the larger of the two.

This liquidity is critical, as withdrawals of SolvBTC.BBN are currently paused, “with further details… to be announced soon.”

The lack of withdrawals means that the asset is relying on its DEX liquidity; with a BNB Chain market cap of $260M and just $3M in paired liquidity, it is possible that the market price of the SolvBTC.BBN could dislocate from SolvBTC, which could in turn create significant volatility in SolvBTC.BBN’s derivatives. However, it is likely that dislocations would largely be arbitraged away, less a discount for duration risk.

The asset has demonstrated high volatility relative to BTC, though this has reduced significantly in the past month, registering at 4.84%.

PT-SolvBTC.BBN

PT-SolvBTC.BBN (27MAR2025) is a token representing the principal of the underlying asset deposited into Pendle. At the current time of expiry, given by the market proportion constraint and the configured scalarRoot parameter, the maximum price drop for the PT token is 5% from its current implied value, which will continue to decrease as the PT token reaches maturity, implying that the market price is confined within a tight range.

Collateral Factor and Liquidation Incentive

Using our previous listing of PT-weETH as a guide, and augmenting for the additional volatility present in SolvBTC.BBN, we recommend setting the CF to 80%, the LT to 85%, and the Liquidation Incentive to 3%.

Supply Cap

Pendle AMM Slippage

The below plot represents the amount of liquidity available under 3% slippage as the market approaches expiry, given the current liquidity distribution in the AMM. As the market matures and moves closer to expiry, the slippage associated with swapping PT becomes less extreme. This trend is especially pronounced for assets with lower scalarRoot values, i.e. a greater expected implied yield fluctuation, and they tend to have more variance in liquidity concentration. As a result, the quota limit relative to the pool size becomes quite substantial as expiry approaches, reflecting the heightened liquidity concentration.

Underlying Asset Liquidity

However, the underlying asset SolvBTC.BBN portrays much smaller on-chain liquidity, which is a necessity when unwrapping for the underlying during liquidation events and at expiry. Following Chaos Labs’ approach to initial supply caps for new assets and deployments, we propose setting initial supply caps at 2x the liquidity available under the Liquidation Penalty price impact, leading to a supply cap recommendation at 80 PT-SolvBTC.BBN.

Borrow Cap

Given the asset is set to expire, after which it will converge to the underlying at expiry, effectively transforming into an SolvBTC.BBN wrapper within the pool. This transition will necessitate manual withdrawals by PT token holders, with the underlying oracle quoting the price of SolvBTC.BBN.

Anticipating a surge in PT token withdrawals and BTC debt repayments post-expiration, we opt not to enable borrowing of the asset. This decision stems from the absence of a clear use case for borrowing, coupled with our expectation that users will withdraw PT tokens. Thus, we aim to mitigate potential tail risks associated with insufficient liquidity for withdrawals in case users borrow the asset.

Pricing

Given the lack of available withdrawals, we recommend pricing SolvBTC.BBN using a market oracle, augmented with the PT token TWAP oracle, configured to a 30 min time window.

BTCB IR Curve and Caps

We recommend setting the borrow APR at the Kink to 50 bps below the median implied APY for the asset since inception (7.47%). This leads to a target of 7% at the Kink, which we recommend setting to 80%, given that BTCB will not be used as a collateral asset in this pool. We recommend a borrow cap set at 2x the amount of BTCB that will be borrowable given PT-SolvBTC.BBN’s borrowing power, finding that BTCB’s caps will not materially change risk and higher caps will allow us to better facilitate market growth and potential new asset listings.

Recommendation

Asset PT-SolvBTC.BBN BTCB
Chain BNB Chain BNB Chain
Pool BTC Isolated Pool BTC Isolated Pool
Collateral Factor 80% 0%
Liquidation Threshold 85% 0%
Liquidation Incentive 3% -
Supply Cap 80 175
Borrow Cap - 140
Kink - 80%
Base - 0.0
Multiplier - 0.0875
Jump Multiplier - 2.0
Reserve Factor - 20%