Overview
Chaos Labs supports the deployment of an Aave instance on the Bob L2 network, contingent upon the availability of Chainlink oracles. This report provides an overview of Bob’s technical aspects and associated risks, along with our recommendations for initial parameters and asset listings.
Technical Architecture
The Hybrid L2 introduced by Bob is a Bitcoin Layer 2 solution designed to enable secure and scalable DeFi on Bitcoin. The hybrid L2 achieved three main properties. First, it leverages Bitcoin’s security through optimistic verification and fault proofs, utilizing BitVM—a mechanism that allows arbitrary programs to execute on Bitcoin in an optimistic manner. Second, it incorporates a trust-minimized BTC bridge, allowing users to securely deposit and withdraw BTC to and from Bob, provided Bitcoin remains secure and at least one honest node can initiate on-chain dispute resolution.
Finally, it includes a trust-minimized Ethereum bridge by combining the design of L1/L2 optimistic Ethereum rollups with a Bitcoin light client (a lightweight node that verifies transactions using minimal data instead of downloading the entire data of underlying blockchain) encoded as a smart contract, ensuring the correctness of L2 withdrawals based on Bitcoin finality.
Bob Architecture
Bob’s roadmap involves three phases: (1) starting as an Ethereum L2 using the OP Stack with Ethereum-native and third-party Bitcoin bridges, (2) introducing Bitcoin “soft” finality, where Bitcoin finality protocol participants validate the Bob chain state to enable a trust-minimized Bitcoin bridge and faster Ethereum withdrawals, and (3) achieving full Bitcoin security by leveraging Bitcoin’s mainchain for data availability and BitVM for optimistic verification, while addressing economic challenges to keep fees competitive with other L2s.
Ecosystem and Market
Bob’s TVL has demonstrated consistent growth since its inception, reaching a peak of $264 million in late November. Despite recent fluctuations, Bob’s TVL has generally remained stable, consistently exceeding $200 million. As of this writing, the TVL stands at $219 million.
Bob TVL; Source: DefiLlama
The largest protocol on Bob is Avalon Finance, with $126M of assets deposited. SolvBTC.bbn accounts for $97.5M of this; the other assets listed are SolvBTC, WBTC, and tBTC. Total borrowing is minimal, currently at just $7M. The second largest protocol is Bedrock, which offers uniBTC, which users can receive by staking FBTC or WBTC. The only other protocols above $10M TVL are Uniswap V3 and Pell Network; the majority of Pell’s TVL on Bob comes from restaked uniBTC ($19M).
The number of contracts on Bob has been growing steadily. As of this writing, approximately 1,700 verified contracts are deployed on the platform.
Bob Number of Verified Contracts; Source: Bob Statistic
DEXs
The presence of sufficient DEXs with consistent liquidity is crucial to ensuring the efficient liquidation of a new Aave instance. In the case of Bob, there are currently two major DEXs providing liquidity.
- Uniswap V3
- TVL: $37.68M
- 7-day Cumulative Volume: $139.8M
- Sovryn DEX
- TVL: $7.17M
Tokens
As initial assets within the Bob instance, we recommend a strict list of assets that were extensively covered by the Aave Risk Providers on multiple chains. The selection aims to provide basic functionality for the new instance, with any additions and successive listings being proposed and approved through standard governance procedures.
For example, as discussed above, solvBTC.BBN has a significant supply on Bob (current supply of 1,504), positioning it as a potential top asset. However, given its unique risk profile it is preferable to consider listing this and other assets through the usual governance process.
The total supply and liquidity of stablecoins and WETH on Bob are currently limited, so we do not recommend listing any stablecoin or WETH at this time.
Chaos Labs proposes the following assets for the initial listing on the Bob instance:
| Asset | Supply on Bob | Market Cap on Bob | Volume | Liquidity | Bob Explorer |
|---|---|---|---|---|---|
| tBTC | 71 | $6.89M | $15.61K | $3.37M | URL |
| WBTC | 415 | $38.52M | $752.82K | $5.37M | URL |
| LBTC | 28 | $2.58M | $287.50K | $2.06M | URL |
Oracles
Chainlink Data Feeds are currently unavailable on Bob. Therefore, we recommend waiting for their deployment before proceeding with the deployment of Aave on Bob to ensure accurate asset pricing.
Listing Parameters
As Bob is still in its early stages, the proposed assets have limited supply and liquidity on the chain. Therefore, we recommend adopting slightly more conservative parameters at this stage. We will refer to the current parameters of these assets in existing Aave markets and apply conservative adjustments. Pricing mechanisms should be aligned with existing listings of each asset.
Supply and Borrow Caps
In line with Chaos Labs’ methodology for establishing initial supply caps, we recommend setting the supply cap at 2x the liquidity available under a price impact equivalent to the Liquidation Penalty. For borrow caps, we suggest setting them slightly above the UOptimal for each asset, providing room to accommodate potential future surges in demand.
Additionally, we recommend ensuring that the supply cap for the proposed assets does not exceed 75% of their total supply on Bob.
E-Mode
Because the proposed assets in this proposal are all BTC-related and have a considerable amount of liquidity, Chaos Labs recommends the creation of a BTC-correlated E-Mode. This approach can help attract more users to Aave, especially given the growth of the BTC LST market.
We recommend creating a BTC-Correlated E-Mode, designating LBTC as the sole collateral asset within this configuration, while setting all other assets as borrowable only.
Specification
Parameters are to be provided after input from @LlamaRisk.
Disclaimer
Chaos Labs has not been compensated by any third party for publishing this recommendation.
Copyright
Copyright and related rights waived via CC0