[ARFC] Core & Base - BTC Correlated Asset Update

Governance
2

Summary

LlamaRisk supports the initiative; however, we propose slightly adjusted parameters for LBTC onboarding on Base due to insufficient liquidity relative to the proposed requirements. We also recommend disabling LBTC borrowing on Base since there is no envisioned utility beyond shorting the asset. Regarding the uOptimal changes for cbBTC and fBTC, as well as the E-mode additions on both the Core and Base instances, we support these modifications.

Overall, the proposal aims to bolster the leveraged looping of LBTC against other BTC wrappers. LBTC holders currently receive points only - there is no redistribution of Babylon staking yield at this time. We believe the future native LBTC yield will generate a significantly larger demand. We previously published a complete review of LBTC for its onboarding on the Core instance.

LBTC on Core instance

The LBTC supply/borrow caps were recently increased from 800 to 1600, and the supply utilization quickly grew to 70% as of February 5th, 2025, indicating a strong demand from the community.

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Source: ChaosLabs Community Analytics, February 5th, 2025

In the core instance, LBTC is primarily used as collateral against WBTC at 85%, followed by cbBTC at 9.5%. $70m out of $82m of all borrows against LBTC are made through the LBTC/WBTC E-mode, showing that leveraged looping is the main driver of borrowing demand. Adding cbBTC and fBTC (soon to be onboarded) will provide more BTC wrappers to borrow against LBTC for that use case.

LBTC on Base

Liquidity

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Source: Kyberswap, February 5th, 2025

We found 172 LBTC ($16.5m) available within an 8.5% price impact on Base. Following our usual methodology, this would yield a supply cap of around 350 LBTC. Those figures are more than half of what is being proposed for the Base instance; therefore, we recommend decreasing those figures to align better with the available LBTC liquidity on Base.

We recommend disabling LBTC borrowing entirely, as its primary function will serve as collateral against other BTC wrappers for leveraged looping strategies. We support the proposed E-mode parameters, which align with the LBTC/WBTC E-mode configuration on the Core instance.

Access Controls (bridge infra)

Bridging transactions between Base and other networks requires the consortium’s approval, an off-chain federation organized by LombardFinance, and CCIP from Chainlink. LBTC can be minted from BTC and directly redeemed for BTC on Base.

Here are the main controlling wallets:

Here are the contracts related to the LBTC deployment on Base:

  • Bridge: Allows for the bridging of LBTC between Base and other chains. It is deployed behind a TransparentUpgradeableProxy and is owned by the LombardTimelock.
  • LBTC: The ERC20 token contract for LBTC. It is deployed behind a TransparentUpgradeableProxy contract from OpenZeppelin, is owned by Multisig A and is pausable by Multisig B.
  • LBTC Boring Vault: Restaking vault managed by EtherFi.
  • ConsortiumGovernance: Responsible for verifying signatures made by the consortium. Deployed behind a TransparentUpgradeableProxy contract from OpenZeppelin, it is owned by LombardTimelock.
  • BasculeDrawbridge: Independently verify the correctness of BTC deposits and withdrawals into and from LombardFinance. It is owned by EOA A and is operated by Cubist.

The LBTC contract has multiple roles for which we could find the following assignment:

The BasculeDrawbridge contract has multiple roles for which we could find the following assignment:

  • DEFAULT_ADMIN_ROLE is assigned to EOA A
  • DEPOSIT_REPORTER_ROLE is not assigned
  • PAUSER_ROLE is assigned to EOA B
  • VALIDATION_GUARDIAN_ROLE is assigned to EOA A
  • WITHDRAWAL_VALIDATOR_ROLE is assigned to the LBTC contract

Aave V3 Specific Parameters

For the onboarding of LBTC on Base, we propose half of the proposed supply cap, a 50% reserve factor (to align with LBTC on Core instance), and to disable the borrowing of LBTC. We agree with the other proposed parameters and E-modes.

Disclaimer

This review was independently prepared by LlamaRisk, a community-led non-profit decentralized organization funded in part by the Aave DAO. LlamaRisk is not directly affiliated with the protocol(s) reviewed in this assessment and did not receive any compensation from the protocol(s) or their affiliated entities for this work.

The information provided should not be construed as legal, financial, tax, or professional advice.

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