Overview
Chaos Labs supports listing cbBTC on Aave V3’s Ethereum and Base deployments.
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.
Minting and burning uses the same set of smart contracts as used in cbETH, which we previously recommended listing; “no material contract code” has been modified in deploying cbBTC. cbBTC utilizes both hot and cold wallets, and redemption rights remain with cbBTC holders; additional details are dictated in the Coinbase User Agreement.
While we recognize users’ concerns about regulatory and centralization risk; we find that cbBTC presents similar risks in these regards as cbETH and USDC, both assets which have been listed on Aave previously.
Pricing cbBTC
Given the structure of cbBTC, particularly its minting and burning mechanism, we anticipate that cbBTC’s price will closely track that of BTC. However, shortly after launch it is possible that the asset will experience volatility relative to BTC, which may cause unnecessary liquidations and potential cascades. Given these factors, we recommend initially pricing the asset using the BTC/USD market oracle.
LTV, Liquidation Threshold, and Liquidation Bonus
While we are not able to analyze the asset’s historical price volatility, given the pricing set up described above, we recommend aligning cbBTC’s collateral parameters with WBTC’s: 73% LTV and 78% LT. However, we recommend setting the Liquidation Bonus at 7.5% initially, higher than WBTC’s 5%. This higher parameter will help ensure that liquidations are processed even in the event of significant peg or BTC volatility.
Supply and Borrow Caps
We utilize our usual supply cap methodology, setting it at 2x the liquidity available beneath the LB price impact. Additionally, we will recommend setting the borrow cap at 10% of the supply cap, as we have observed little historical borrow demand for BTC-linked assets.
We also note that these measurements are taken shortly after launch, and we anticipate liquidity will improve; we are prepared to facilitate cap increases using the Risk Steward after the asset is listed.
IR Curve
We recommend aligning the IR curve with WBTC’s.
Recommendations
Following the above analysis, we recommend listing cbETH on Aave V3’s Ethereum deployment. We recommend the following parameter settings:
| Parameter | Value (Ethereum) | Value (Base) |
|---|---|---|
| Isolation Mode | No | No |
| Borrowable | Yes | Yes |
| Collateral Enabled | Yes | Yes |
| Supply Cap | 450 | 200 |
| Borrow Cap | 45 | 20 |
| Debt Ceiling | - | - |
| LTV | 73% | 73% |
| LT | 78% | 78% |
| Liquidation Bonus | 7.5% | 7.5% |
| Liquidation Protocol Fee | 10.00% | 10.00% |
| Variable Base | 0% | 0% |
| Variable Slope1 | 4% | 4% |
| Variable Slope2 | 300% | 300% |
| Uoptimal | 45% | 45% |
| Reserve Factor | 20% | 20% |
| Stable Borrowing | Disabled | Disabled |
| Flashloanable | Yes | Yes |
| Siloed Borrowing | No | No |
| Borrowable in Isolation | No | No |
| E-Mode Category | N/A | N/A |