Thank you @bgdlabs for the comprehensive technical analysis. We agree there are two options for tBTC pricing:
- Using a secondary market tBTC/USD price feed (or tBTC/BTC + BTC/USD) with conservative risk parameters and borrow caps. However, the current tBTC market depth is low and mostly on DEXes, making it potentially vulnerable to manipulation.
- Using the BTC/USD price feed directly, effectively trusting the security of tBTC and its Bitcoin reserves. This avoids DEX manipulation risks but requires ongoing validation of the Threshold Network’s security.
Given the current tBTC market dynamics, using the BTC/USD price feed (option 2) is the most prudent path forward for initial integration. However, risk parameters should be set conservatively to account for tBTC’s nascent stage. This is a temporary solution, and improvements will need to be implemented as the ecosystem matures.
@bgdlabs prospective work on integrating Chainlink Proof-of-Reserve (PoR) feeds for assets like tBTC would provide real-time on-chain verification that the Threshold Network holds sufficient Bitcoin collateral to back the minted tBTC supply. This additional layer of transparency and auditability would significantly boost confidence in tBTC’s reserve backing and peg stability. If a PoR check fails, indicating a potential discrepancy between tBTC supply and the underlying Bitcoin reserves, we recommend exploring the following programatic protective measures:
- Switch to the market price: begin using secondary market tBTC/USD price feeds, allowing the price to reflect any depeg from BTC due to reserve discrepancies.
- Set Loan-to-Value (LTV) to 0%: Temporarily disable borrowing against tBTC collateral by setting its LTV ratio to zero. This action prevents new loans from being issued against potentially undercollateralized tBTC and protects the protocol from insolvency risks.
There are various considerations and scenarios to examine for such a system, and we are happy to assist with this research.
Regarding liquidity: Mainnet liquidity has improved, allowing 335 tBTC to WBTC at 7.5% slippage. Arbitrum liquidity is also conducive to onboarding, with 197 tBTC to WBTC at 7.5% slippage. However, we believe Optimism liquidity remains too low for onboarding at this time.
We will align with @ChaosLabs and propose revised parameters for onboarding shortly.