Summary
Chaos Labs provides a recommendation for a new cbBTC/WBTC Liquid E-Mode.
Motivation
Before Aave v3.2, E-Mode configurations were constrained to the least liquid and stable asset within each E-Mode pool, limiting capital efficiency. Liquid E-Modes now enable more tailored E-Mode configurations, allowing for optimization across different asset pairs. In this case, we recommend a cbBTC E-Mode with WBTC as a borrowable asset.
Collateral and Borrowable
As described by ACI, this instance intends to allow users to borrow WBTC with cbBTC.
E-Mode Liquidation Bonus, LT, and LTV
As described by LlamaRisk, the oracle setup for each asset means that users who borrow WBTC using cbBTC will only be exposed to changes in WBTC’s exchange rate. Similar to their observations, we find the largest deviation to be 31 bps.
While cbBTC is priced according to BTC/USD’s price, it is important to consider its deviations, as these can eat into the liquidation bonus; if the deviation is larger than the LB, liquidating may not be profitable. Below is charted cbBTC’s premium relative to WBTC on the most liquid Uniswap V3 cbBTC/WBTC pool (0.05% fee), indicating that this is not an issue at this point in time.
Given this, we concur with the recommended LB of 1%. This LB implies a bad debt point of 99%, a sufficient buffer between the proposed parameters of 93% LTV and 95% LT.
Supply and Borrow Caps
It is not currently necessary to change WBTC’s borrow caps, as there are over 25.32K WBTC available before the cap on Ethereum is reached.
Specification
Based on the considerations outlined above, we recommend implementing the following E-Mode configuration:
| Parameter | Value | Value |
|---|---|---|
| Asset | cbBTC | WBTC |
| Collateral | Yes | No |
| Borrowable | No | Yes |
| Max LTV | 93% | - |
| Liquidation Threshold | 95% | - |
| Liquidation Penalty | 1% | - |
Disclaimer
Chaos Labs has not been compensated by any third party for publishing this post.