Author

Chaos Labs

Overview

Chaos Labs proposes listing LBTC on the Gearbox WBTC with conservative quota limits and LT parameter of 35 BTC and 90%.

Having launched on August 21st, with the corresponding Babylon protocol set to follow on August 22nd, LBTC is currently in private beta. Waitlist members are being gradually issued access codes to deposit BTC and mint LBTC in batches over the coming days. At time of writing, there have been 191 LBTC minted by 32 different users, resulting in a TVL of approx. $11,606,884.

Note: The following recommendation is based exclusively on market risk considerations, deliberately excluding centralization and third-party risk factors. Should the community seek to mitigate exposure to Lombard, it may be prudent to consider the implementation of more conservative supply and borrow caps. We provide a brief commentary on these factors.

Missing Rewards

LBTC's success is closely tied to the performance of the Babylon protocol. However, the Babylon protocol will be rolled out in multiple phases. In the first phase, up to 1000 BTC can be deposited into the protocol, but the Babylon Proof-of-Stake (PoS) chain has not yet launched, meaning staking will not be available until the next phase. The timing for this subsequent phase has not been communicated, leaving LBTC without any reward streams in the foreseeable future. Although the Babylon protocol is distributing points during this interim period, these points are allocated to depositors through the Lombard Finance protocol, not to LBTC holders. This lack of yield could potentially dampen demand and trading activities for LBTC in its early stages.

Collateral & LBTC Supply

Babylon employs a first-come, first-served methodology, making it uncertain how much of the BTC deposited on Lombard Finance will ultimately be staked on Babylon. If Babylon's initial cap of 1,000 BTC is reached, Lombard Finance will continue accepting BTC deposits and minting LBTC. Deposits will be held in users' SegWit addresses, which are managed via CubeSigner. These addresses have access controls, permitting transactions only with Babylon and requiring multi-party approval (MPA) by a committee. However, the identities of the committee members have not been disclosed.

We find this information relevant, as it seems that a substantial portion of the LBTC collateral will remain in these deposit addresses rather than being moved to the Babylon protocol until the cap is lifted. An initial survey of the Discord community also suggests that the first-come, first-served approach is causing users to hesitate about depositing into Lombard, potentially further restricting the LBTC supply.

Liquidity

As for liquidity, both the Curve as well as the Uniswap pool have increase their liquidty, with Uniswap holding $950k (15.60 BTC) and Curve $100k (1.72 BTC). Which we see as a positive sign for LBTC adoption going forward.

Recommendation

Since LBTC is still in an early stage, we recommend listing LBTC within the WBTC market with a low limit quota at this stage given the low liquidity and our projected forward-looking price volatility with respect to its peg. As liquidity increases over the coming days and weeks, we will monitor the token and quota to assess for quota increases.

From a trust assumption point of view, we would also feel more comfortable should more information to Committee members regarding those who control the user deposit addresses be disclosed. We also await the date for the cap lift from the Babylon side.

Specification

Parameter	Value
Asset	LBTC
Chain	Ethereum
Credit Manager	WBTC Tier 1 Credit manager
Quota Limit	35
minRate	.5%
maxRate	30%
Liquidation Threshold	90%
Trade Adaptors	UniV3: 0x87428a53e14d24Ab19c6Ca4939B4df93B8996cA9 and Curve: 0xf130e387e2083ee79f3588e678c9b446a07860cb
Oracle	Redstone: https://etherscan.io/address/0xb415eAA355D8440ac7eCB602D3fb67ccC1f0bc81

Transaction log

Txs log can be found here Md5 checksum is 28bc7c7ce856f89d98e605ce257d0c1c