[RFC] Listing of solvBTC and m-BTC

Voting ended over 1 year agoSucceeded

Abstract

Currently in the market there are multiple new tickers appearing for Bitcoin within the Ethereum Layer-2 ecosystem.

sovlBTC and m-BTC are launching on Linea, with solvBTC experiencing a large influx of liquidity already, and the other asset expected to follow over the next week.

This proposal will highlight key aspects, risk profile and trust assumptions associated with listing such asset.

Proposal Summary

Deploying solvBTC and Merlin m-BTC market can raise the TVL of the protocol, and we can see that as a positive effect for branding and exposure purposes, seen previously on Mode for example.

With that said the community holding these tokens don’t exhibit participation signs in the borrowing side of the lending protocol, rather just hold the tokens and generate rewards on them.

This means that expected revenue from the assets towards stakers and other lenders is unlikely if we base it on the activities observed on major lending protocols within the Mode ecosystem that has a large m-BTC community.

Motivation

The Mendi community needs to consider whether the associated benefits to list the new assets would outweigh the risks associated with the new listings. As Mendi employs a non isolated approach to markets the different markets are connected therefore any listing decision has to carefully consider what risks a new asset brings within the market and how best to minimize the risks to accumulate sizeable bad debt within the protocol. In the following part we will highlight all associated risks with the new ticker type BTC assets.

Risk profiles

Merlin m-BTC

Merlin chain is a zero-knowledge rollup being built on the Bitcoin network as a Layer-2. It uses Polygon CDK, Celestia for Data Availability, and it is powered by Lumoz’s decentralized ZK computing power network for ZKP computation.

Merlin support Bitcoin Layer-1 asset BTC through a bridge contract.

Users send their assets to BTC addresses managed by multisig wallet solution. The Bridge Indexer and Bridge Relayer work together to confirm the transactions are done.
The Bridge Relayer then calls the Bridge Smart Contracts to mint related tokens on Merlin Chain and send them to the users.
The Bridge Contract Implementation:
- Github: https://github.com/MerlinLayer2/BTCLayer2BridgeContract
- VerifieCodes: https://scan.merlinchain.io/address/0x28AD6b7dfD79153659cb44C2155cf7C0e1CeEccC
- The Audit Report: https://github.com/MerlinLayer2/merlin-audits/blob/main/SlowMist%20Audit%20Report%20-%20BTCLayer2BridgeContract.pdf

The main risk therefore stems from the multisig wallet solution on the native side.

Merlin m-BTC use Meson.fi Free bridge to bridge the tokens to the Linea ecosystem

Meson.fi failing can cause a large issue on the Linea m-BTC price

Liquidity Stats:

Global Liquidity → 1.6 billion +
Linea Liquidity

solvBTC

Solv Protocol is a native yield platform powered by decentralized asset management infrastructure, dedicated to tokenizing and aggregating high-quality yields from across the industry.

Solv Protocol employs a multi-party computation wallet behind their vaults which generates yield behind the BTC deposits of users.

Solv employs a combined strategy to generate its native yield, which provides the first point to generate risk:

BTC Layer-2 PoS staking
BTC Restaking - Babylon
DeFi Delta-Neutral Strategies
- https://app.solv.finance/fund
CeFi Delta-Neutral Strategies

All of these strategies carry inherent risk behind the solvBTC tokens.

Protocol risk → GMX, Uniswap
CEX risk → Binance, OKX, Bybit solvency risk

solvBTC also brings two-fold bridging risk:

Deposit is possible with BTC.B, FBTC, m-BTC, wBTC and BTC
- Multiple bridged tokens are accepted which raises the risk of bridges within the protocol
- One of the underlying bridges failing will cause the token to depeg from BTC price
Meson.fi Free Bridge being used to bridge the tokens to the Linea ecosystem
- Meson.fi failing can cause a large issue on the Linea solvBTC price

Deployment Options

Full market deployment
Deploy only as collateral like ezETH, preventing borrows of the token.

Technical considerations

The core tem would be responsible for deployment of the markets.

Deployment Considerations

The core team will be responsible for deploying the new market.

API3 feeds could be used for deployment

Collateral Factor: 35% target

Due to the risks associated, if the DAO decides to proceed with the listing a low c-factor would be suitable to decrease the risk associated from market deployments. If there are any risks

Reserve Factor: 20%