Overview
Chaos Labs supports listing tBTC on Aave V3 Ethereum. Following is our analysis and risk parameter recommendations for the initial listing.
Note: The following analysis is conducted solely from a market risk viewpoint, excluding centralization and third-party risk considerations. If the community aims to reduce exposure to tBTC, adopting more conservative supply and borrow caps should be considered.
Liquidity and Market Cap
tBTC is a wrapped version of BTC that is available on Ethereum, as well as on other chains via the Wormhole bridge. Note that we do not generally recommend listing bridged assets; this, combined with limited liquidity on other networks, leads us to only recommend an Ethereum listing at this time.
Over the past 180 days, its average market cap is $97.24M and its average daily trading volume is $3.04M, including both centralized and decentralized exchanges. However, it has undergone rapid growth in recent weeks, and its current market cap stands at over $200M.
tBTC Volatility
Relative to BTC, we find that tBTC has a 30-day annualized volatility of 4.85%.
Relative to USD, we find it has a 30-day annualized volatility of 47.62% and a largest single-day price drop of 8.28%.
Liquidation Threshold
Considering the volatility of the asset, we recommend setting the LT to 78% and the LTV to 73%, mirroring similar assets on Ethereum V3.
Supply Cap, Borrow Cap, and Liquidation Bonus
Chaos Labs’ approach to initial supply caps is generally proposed through setting the Supply Cap at 2x the liquidity available under the Liquidation Penalty price impact, which leads to a recommendation of 550 tBTC. Based on this, we recommend a borrow cap of 275 tBTC.
IR Curve Parameters
We recommend aligning the interest rate parameters with those of similar assets on Ethereum to ensure consistency across similar assets on Aave v3.
CAPO recommendations:
Given tBTC’s capability to be redeemed 1:1 for BTC in a permissionless manner within a matter of hours, we recommend aligning our price cap recommendations with those of traditional stablecoins.
| Price Cap |
|---|
| 4% |
Specification
Following the above analysis, we recommend listing tBTC with the following parameter settings:
| Parameter | Value - Ethereum | Value - Arbitrum |
|---|---|---|
| Isolation Mode | No | No |
| Borrowable | Yes | Yes |
| Collateral Enabled | Yes | Yes |
| Supply Cap (tBTC) | 550 | 80 |
| Borrow Cap (tBTC) | 275 | 40 |
| Debt Ceiling | - | - |
| LTV | 73.00% | 73.00% |
| LT | 78.00% | 78.00% |
| Liquidation Bonus | 7.50% | 7.50% |
| Liquidation Protocol Fee | 10.00% | 10.00% |
| Variable Base | 0.0% | 0.0% |
| Variable Slope1 | 4.00% | 4.00% |
| Variable Slope2 | 300.00% | 300.00% |
| Uoptimal | 45.00% | 45.00% |
| Reserve Factor | 20.00% | 20.00% |
| Stable Borrowing | Disabled | Disabled |
| Flashloanable | Yes | Yes |
| Siloed Borrowing | No | No |
| Borrowed in Isolation | No | No |