Summary
A proposal to adjust risk parameters for WBTC.e on Avalanche deployments, to limit further exposure and promote user migration to BTC.b:
- V2
- Freeze asset
- Reduce Liquidation Threshold and LTV
- V3
- Freeze asset
- Reduce Liquidation Threshold and LTV
Motivation
As the Avalanche network is transitioning away from WBTC.e, we are observing an ongoing decrease in WBTC.e liquidity on-chain, with approximately 30% of the liquidity diminishing over the past few months. At this time, the total circulating supply on Avalanche is 1,731 WBTC.e. A considerable portion, nearly 67%, of the circulating supply is concentrated on Aave Avalanche V2 and V3, with ~496 and ~664 tokens, respectively.
Time series of total WBTC.e circulating supply on Avalanche
Time series of WBTC.e-USDC price impact on Avalanche, showing a trend of decreasing DEX liquidity
Given the persistence of this trend, we suggest reducing exposure on Aave and proactively modifying risk parameters for the asset. This strategy aims to:
- Avert a potential scenario where there is inadequate liquidity to facilitate liquidations in Aave deployments.
- Motivate new and existing users on Aave to transition to BTC.b, which has a stronger liquidity profile on Avalanche.
Limit New Supply
Freeze the WBTC.e reserves on V2 and V3 Avalanche.
Reduce Capital Efficiency
Additionally, as a precautionary measure and to further reduce exposure to the asset, we recommend reducing LTs and LTV, without impacting current holders:
- V3 - reduce LT to 70 % and LTV to 0.
- V2 - reduce LT to 70% and LTV to 0.
- at this time, this will lead to 6 accounts totaling $15 to be liquidated.
Usage Analysis
Currently, about 31% of the WBTC.e supply serves as collateral, primarily utilized for borrowing stablecoins, WETH, and WAVAX. A detailed breakdown of borrowing distribution is highlighted below.
In addition, in both Avalanche deployments, we haven’t detected any risky positions, nor is there a significant concentration of funds in individual wallets.
V3
V2
Specification
V3 Avalanche
| Asset | Parameter | Current | Recommendations |
|---|---|---|---|
| WBTC.e | Liquidation Threshold | 75% | 70% |
| WBTC.e | LTV | 70% | 0% |
| WBTC.e | Freeze Reserve | NO | YES |
V2 Avalanche
| Asset | Parameter | Current | Recommendations |
|---|---|---|---|
| WBTC.e | Liquidation Threshold | 75% | 70% |
| WBTC.e | LTV | 60% | 0% |
| WBTC.e | Freeze Reserve | NO | YES |
Next Steps
- Following community feedback, submit the ARFC for a snapshot vote for final approval.
- If consensus is reached, submit an Aave Improvement Proposal (AIP) to implement the proposed updates.
Disclaimer
Chaos Labs has not been compensated by any third party for publishing this ARFC.
Copyright
Copyright and related rights waived via CC0