Support cbBTC as collateral on Venus Protocol Ethereum Core Pool

[Oranges]

Summary:

Coinbase Wrapped Bitcoin (cbBTC) is a tokenized version of Bitcoin introduced by Coinbase. We propose introducing cbBTC as a collateral asset as a core pool on Venus Protocol.

Motivation:

Liquidity: cbBTC has strong liquidity on Ethereum mainnet, with ~$36m at time of writing.
Market Acceptance: Coinbase is an incredibly well established CEX, and BTC is the largest crypto asset in the world. Coinbase is taking more of its products on-chain and we only expect to see cbBTC grow.
Listing cbBTC expands the asset offering on Venus, enhancing its position as a leading DeFi protocol.

Risks

Volatility Risk: cbBTC is redeemable for BTC, 1 to 1. It therefore has similar volatility risks to BTC.
Smart Contract Risks: Any unexpected issues with coinbase custody or their wrapper contract could affect the price of cbBTC although this does not seem likely.

Benefits

Increased Asset Diversity: The addition of cbBTC provides Venus users with another asset to use as collateral or borrow, catering to different risk profiles.

DeFi Innovation: Adding cbBTC to Venus enables Venus Protocol to keep relevant in an ever changing Defi space, and enable it to capture market share of the expanding BTC Defi ecosystem.

Background

Coinbase Wrapped Bitcoin (cbBTC) is a tokenized version of Bitcoin introduced by Coinbase to enable BTC holders to access decentralized finance (DeFi) services on Ethereum and Base. Each cbBTC token is backed 1:1 by Bitcoin held in Coinbase’s custody, ensuring that it maintains value parity with BTC.

Specifications

Contract address: 0xcbb7c0000ab88b473b1f5afd9ef808440eed33bf
Oracle & Price Feeds: Implementation expected with Redstone

Community Involvement

We recommend that the Venus community support this proposal and, if agreed, request Chaos Labs to analyze and provide risk parameters for the safe integration of cbBTC into Venus Protocol.

We look forward to the community’s feedback and the successful adoption of cbBTC.

[Tomm]

Listing Coinbase Wrapped Bitcoin (cbBTC) is a attractive idea! Venus need to list more BTC based assets.

[Frayst]

A big yes for this proposal. There is a lot of TVL with this market in other DeFi platforms. We can also think about cbETH as collateral on Venus Protocol Ethereum Core Pool.

Thank for this proposition !

[DomVSPM]

As we want to see our markets grow up on ETH i like to see that we are constantly adding new markets to the Core pool now. Yes, let’S do it.

[emanueledornelas]

cbBTC is promissing and a CEX token can bring better accessibility to new users. Big yes.

[chaoslabs]

Overview

Chaos Labs supports listing cbBTC on Venus Protocol’s Ethereum Core Pool. Below is our analysis and recommendation for initial risk parameters.

cbBTC

cbBTC is a token backed 1:1 by native BTC held by Coinbase. Minting is initiated when a user withdraws BTC held on Coinbase to Ethereum or Base. cbBTC is burned when it is deposited to a Coinbase account, with a corresponding amount of BTC released from the reserve and assigned to said account. Importantly, no fees are associated with minting and burning, reducing friction in this process and likely improving peg stability.
Since its launch, its market cap has grown rapidly, reaching nearly $1.5B in just two months.

56% of its supply is deposited on Aave V3 Ethereum, and another 4.6% is deposited on Aave V3 Base.

It is positioned as a competitor to other BTC wrappers like WBTC, announced and launched shortly after controversy surrounding WBTC’s change in custody.

Liquidity

On Ethereum, it has significant DEX liquidity spread across numerous DEXes, with Uniswap V3 pools facilitating most of its volume on Ethereum. Since launch, its DEX liquidity has been relatively steady; throughout this time, the median amount that can be swapped for USDC with 10% slippage is just over 300 cbBTC.

Most of its DEX liquidity is paired with WBTC, as shown below by the simulated 300 cbBTC for USDC swap.

Its average daily trading volume across all venues is $181M.

Volatility

Relative to WBTC, cbBTC has traded a consistent, small premium of about 20 bps. The chart below shows this on Uniswap’s 0.05% fee cbBTC/WBTC pool, its most liquid venue.

Relative to BTC, the asset has demonstrated low volatility (2.18% daily annualized over the last 30 days), indicating a robust peg.

Collateral Factor, Liquidation Threshold, and Liquidation Bonus

Given the asset’s strong peg and distributed liquidity, we recommend setting its Liquidation Bonus to 7.5%. Given this LB, we recommend a Liquidation Threshold of 78% and a CF of 74%, aligned with other top borrow/lend protocols.

Interest Rate Curve

We recommend aligning the IR curve with BTCB’s and WBTC’s.

Supply and Borrow Cap

Following Chaos Labs’ approach to initial supply caps, we recommend setting the supply cap at 2x the liquidity available at a price impact equal to the LB. Following this methodology, we recommend a starting supply cap of 1,100 cbBTC, with a borrow cap set to 50% of this value.

Recommendation

Asset	cbBTC
Chain	Ethereum
Pool	Core
Collateral Factor	74%
Liquidation Threshold	78%
Liquidation Bonus	7.5%
Supply Cap	1,100
Borrow Cap	550
Kink	75%
Base	0.0
Multiplier	0.09
Jump Multiplier	2.0
Reserve Factor	20%

[mopgawka]

Looks like a promising option for bail, let’s give it a try