[WBTC-B] and [WBTC-BProt-A]: Review and Plan of Action

Recent forum discussions (1, 2, 3) that imply a bullish market outlook and a consequent increased demand for DAI minting, suggest that a number of parameter changes and vault upgrades may be necessary. This includes changing certain DC-IAM parameters, such as: increasing line, increasing gap, and lowering ttl across ETH-A, ETH-B, and WBTC-A. In addition, the community has on several occasions expressed the need for a WBTC-B vault, that would implement a lower liquidation ratio, similar to ETH-B.

In response, the MakerDAO Open Market Committee has already acted by posting the “Mid-month Parameter Changes Proposal - PPG-OMC-001 - 2021-10-15”. They have proposed several changes to the DC-IAM of ETH-A, ETH-B, and WBTC-A. An on-chain poll of the changes has already passed. Currently, the suggested changes are in an executive vote.

In the coming months, the @Risk-Core-Unit expects continued optimistic market sentiment with increased price volatility. While this may warrant an increase in debt ceilings and further leverage potential, we must remain cautious. Large, short-term price drops can be expected in such market conditions. This is the biggest risk for creating bad debt. The Risk Core Unit continues to monitor all individual vaults inside the Maker system. Each vault is assigned risk scores reflecting the vault user behaviour and the inclusion of protection systems from protocols such as DeFi Saver. Experience shows that positions that are protected by DeFi Saver are well managed and have a low probability of being liquidated. Hence the risk of bad debt is diminished. All vault users are encouraged to use such protection systems when usage is possible. This is especially relevant for vault types with a low liquidation ratio.

Taking this into consideration, the Risk Core Unit believes that the time is right to introduce a WBTC-B vault with a lower liquidation ratio. This will help absorb the increased demand for WBTC capital and generate more DAI. For example, DAI minted from the WBTC-A vault has met new all-time highs, currently at 685 million. This represents a 240% increase since September 26. According to Makerburn, at current issuance rates, the debt ceiling of WBTC-A will be reached within 4 days.

B.Protocol has previously suggested onboarding a WBTC vault backed by their liquidation mechanism. The community has signalled interest in this solution on several occasions (1, 2, 3). In December 2020, through an informal poll, the community voted in favour of a Maker vault backed by B.Protocol liquidators. In addition, B.Protocol has posted a “Declaration of Intent” on two separate occasions in the Maker forum, in January 2021, and in June 2021. The most recent declaration of intent includes details of B.Protocol V2 and the so-called B.AMM (Backstop Automated Market Maker). More recently, the B.Protocol team posted additional details of the proposed blipper implementation, with the aim of extending the Clipper to support the B.Protocol liquidation mechanism.

The deployment of a B.Protocol WBTC vault (WBTC-BProt-A) implies the introduction of a novel technology for Maker. This means the implementation may take some time. First, PE and Oracles will need to comprehensively evaluate the technical implications of introducing a WBTC-BProt-A vault. Second, the Risk Core Unit will have to fully assess the risks of such a deployment. Considerations must include possible outcomes such as the potential disincentives for the current liquidator ecosystem. To mitigate these risks, the debt ceiling of any potential B.Protocol vault should initially be constrained until more quantitative data is available.

For the reasons mentioned above, the Risk Core Unit believes that the onboarding of a WBTC-BProt-A vault can be worked on in tandem with onboarding an ordinary WBTC-B vault. In other words, implementing a WBTC-B vault does not necessarily prevent the possibility of a B.Protocol vault integration. We do, however, believe that a normal WBTC-B vault should be onboarded sooner, rather than later. This means we can give the WBTC-BProt-A vault implementation the time and effort it deserves.

The use of both a WBTC-B vault and a WBTC-BProt-A vault provides the opportunity to compare and assess both vault types and gather new empirical data on the potential benefits of B.Protocol for Maker. This will be an important exercise to accurately identify the value-add of B.Protocol. Furthermore, the implementation of an ordinary WBTC-B vault will help absorb the rising WBTC collateral demand. The lower debt ceiling of a WBTC-BProt-A vault means that, if it was deployed on its own, this would not be possible.

In summary, we suggest that Maker first implements an ordinary WBTC-B vault with parameters designed by the risk team. This will be similar to ETH-B. We also suggest implementing a WBTC-BProt-A vault with B.Protocol at a later stage. This vault will have similar parameters, but with a lower debt ceiling, due to unknown unknowns and potential unwanted risks for Maker. The community can then take further actions once relevant data is available and has been properly analysed.

If the community agrees with our reasoning, we will publish two separate risk assessments: (i) A collateral onboarding risk assessment for an ordinary WBTC-B vault. (ii) At a later stage we will release a more comprehensive risk assessment for a WBTC-BProt-A vault integration.

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We at B.Protocol believe it is a great idea to have both WBTC-B and WBTC-BProt-A initially to co-exist, and over time, as our new solution gains more confidence from the community, the community would be able to gradually increase WBTC-BProt-A debt ceiling on the expense of WBTC-B debt ceiling.

We are looking forward to collaborate on the risk analysis of WBTC-BProt-A once the PE team finish their technical review.

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