Proposal to add wBTC market to FiRM

[edo]

Summary:

This proposal seeks to add a wBTC market to FiRM, Inverse Finance’s flagship fixed-rate lending platform. Given Bitcoin’s preeminent position in crypto and its growing demand in the DeFi space, wBTC stands as a significant asset with an increasing need for inclusion in lending markets like FiRM. A detailed risk assessment led by the Risk Working Group (RWG) has been undertaken to define the deployment parameters for this market, accessible here.

Motivation:

One of the paramount strategies for ensuring the stability and growth of DOLA is to diversify its collateral backing. By anchoring DOLA’s value to a variety of high-quality assets, we can optimize the robustness of its peg, especially during volatile market conditions. The introduction of new markets, such as wBTC, into FiRM is a step in that direction. By welcoming wBTC, not only are we expanding our reach to the Bitcoin community in DeFi, but we are also fortifying DOLA’s backing with one of the most established and widely recognized assets in the crypto ecosystem.

Risk Assessment:

wBTC acts as a crucial bridge between the Bitcoin and Ethereum ecosystems, offering a way to bring Bitcoin’s value into Ethereum’s rich DeFi landscape. wBTC maintains a peg with Bitcoin by relying on smart contracts and centralized custodians to manage its minting and redemption. The value of wBTC stems from the underlying Bitcoin that’s locked in a custodial manner. These custodial mechanisms ensure that for every wBTC token minted, there is an equivalent amount of Bitcoin locked, and vice versa.

In assessing the risks of wBTC, it’s evident that while it is the most popular solution to “Bitcoin in DeFi”, it also introduces several layers of complexity and trust not inherent to native Bitcoin. The integration of oracles, conversion bridges, and custodians, namely BitGo, into the wBTC process can pose security vulnerabilities, centralized decision-making, and potential financial crises. Furthermore, the dependency on smart contracts or custodians, both of which can be exploited or become insolvent, amplifies these risks. Users must weigh the benefits of wBTC’s interoperability against these risks.

Based on this risk assessment, the proposed parameters for the wBTC market on FiRM are presented in the on-chain actions section below.

Conclusion:

Adding the wBTC market to FiRM is a strategic step toward diversifying our offerings and reinforcing our platform’s strength. wBTC’s unique position in the crypto world offers both opportunity and increased trust for FiRM users. With careful risk management and the platform’s advanced features, we’re set to enhance our lending capabilities.

On-chain Actions:

1. Add wBTCMarket to DBR contract
2. Set borrowController of Market to FiRM BorrowController
3. Set daily limit in BorrowController to 500,000 DOLA
4. Change market supply ceiling in Fed to 5,000,000 DOLA
5. Set Collateral Factor to 80%
6. Set Liquidation Factor to 53.4%
7. Set Liquidation Incentive to 10%
8. Set stalenessThreshold for wBTC market to 86460
9. Set FiRM Oracle price feed for wBTC to the deployed wBTCPriceFeed contract
10. Set MinimumDebt in BorrowController to 3000 DOLA

[patb]

WBTC is a “missing” piece of our FiRM collateral options. Looking at WBTC volumes, competitive analysis, and user requests, this is a low-risk path for further diversifying collateral options on FiRM. While yield-bearing or CRV-based options have been our more standout collaterals since launch, WBTC is widely held, has a mcap of nearly $5B, and gives the DAO an opening to engage the BTC community again.

[mason]

what are the blockers here? Can we explore a DBR rebate to initial period depositors, say a pro-rata discount over 6 weeks?

[cryptoharry]

Dev capacity (arbi fed has been hellish) + review time is what’s slowed it down the most. Should be soon now though.

[edo]

Risk Working Group authored risk assessment has been updated and can be viewed here: Risk Assessment wBTC Collateral on FiRM - Google Docs

Recommendations remain unchanged from original forum post.