Summary
This proposal announces the submission of cbBTC as collateral on the following vaults:
- Flagship ETH on Ethereum Mainnet
- Flagship USDC on Ethereum Mainnet
- Moonwell Flagship ETH on Base
- Moonwell Flagship USDC on Base
- Moonwell Flagship EURC on Base
Along with setting the supply caps for all cbBTC-related markets.
Rationale
After the initial concerns laid out on August 10 addressing the proposed changes in ownership and control of the WBTC product, we’ve been gradually reducing the exposure of Flagship ETH, USDT, and USDC vaults on Morpho Blue (Mainnet) to the WBTC collateral, with a plan to reduce the exposure to zero eventually.
As BTC has historically been one of the more successful collateral types throughout the DeFi landscape (mostly in the form of WBTC), taking into account the potential of BTC denominated assets, we believe that finding alternatives to help fill this gap is of great importance to continue meeting end user demand.
Overview of cbBTC
cbBTC is a tokenized Bitcoin product issued by Coinbase. It is fully fungible with native BTC held on the Coinbase exchange, so any cbBTC deposited to Coinbase can be traded on the regular BTCUSD orderbook (and other BTC markets on Coinbase exchange). Minting and redemption is available to both retail and institutional investors, currently with no fees charged other than standard gas fees for withdrawals/mints.
The cbBTC token address being onboarded is 0xcbB7C0000aB88B473b1f5aFd9ef808440eed33Bf (address is the same for both Mainnet and Base deployments).
Liquidity and Market Risk
Because cbBTC is fungible with BTC on Coinbase, with minting and redemption broadly available to users with no fees, it benefits significantly from the deep BTCUSD liquidity available on the Coinbase exchange. Additionally, over 550 cbBTC has been deposited to various mainnet Uniswap v3 pools (paired with ETH, WBTC, and USDC) in the first day since launch. Including paired asset value, this amounts to over $68 million in TVL within Uniswap v3 pools. Additional funds have also been deposited in Curve ($5 million TVL) and Base L2 liquidity pools ($40 million TVL).
While integration with the Coinbase exchange offers significant advantages, onchain liquidity is still important to allow for atomic liquidations and provide resilience in the event of temporary Coinbase exchange downtime. Currently it is possible to purchase 100 cbBTC with roughly 2.5% market impact, and sell 100 cbBTC with roughly 1% market impact, indicating healthy liquidity levels even at large size. Above 100 cbBTC slippage begins to increase significantly, but we expect onchain liquidity to continue improving in the coming days and weeks after launch.
The charts above show marginal market impact at various trade sizes. Generally we see that slippage is low until 50-70 cbBTC size, then begins to ramp up and reaches significant levels (5-10%+) between 100-200 cbBTC in size. cbBTC is in demand currently leading to many LP pools being overweight WBTC, which results in higher price impact for cbBTC purchases vs sales due to liquidity concentration around 1:1 price ratio. However we expect liquidity pools to and buy vs sell slippage to become more evenly balanced over time.
Technical and Counterparty Risk
Coinbase is a highly reputable exchange and custody service provider, and benefits from enhanced audit standards as a publicly traded company. Financial reports are audited and provide transparency into both earnings and balance sheet health. Details are available for review at the Coinbase investor relations site or via EDGAR. Coinbase is financially healthy with positive earnings in recent quarters as well as a large reserve of cash on hand and available credit. To date the company has not faced any impairments resulting in loss of user funds. Bitcoin reserves for cbBTC are held via Coinbase platform custody protocols. The majority of native Bitcoin funds are expected to be held in cold storage, with a small share of funds available in hot wallets to facilitate primary market deposits and withdrawals.
The cbBTC token on Ethereum has several admin authorities with various controls over the token. The cbBTC token itself uses an upgradable proxy pattern, with the proxy admin (currently set as an EOA) able to upgrade the implementation. Tokens can be blacklisted by a blacklister role, which prevents the relevant blacklisted address from being able to move tokens. The current blacklister role is held by an unverified contract, so the exact mechanisms for how this works is unclear. A master minter role (currently set as an EOA) has the ability to add and remove addresses from a minter allow list and set maximum mint limits; this works similarly to how the WBTC DAO can grant or revoke merchants’ ability to mint WBTC tokens, but with the caveat that all minters for cbBTC are expected to be under Coinbase company control rather than third party entities. The rescuer role, currently set to the zero address, allows assets accidentally sent to the cbBTC contract to be returned. The pauser role (set as an EOA) can pause the contract on a global level, preventing any transfers from taking place while paused. And an owner role (set as an EOA) is able to assign and update all of the other roles mentioned above. It is expected that any EOA accounts used for token admin roles will be managed via secure key management protocols, but there is no way to confirm this from the outside because any MPC or other security mechanisms are not reflected onchain.
The ability to upgrade token implementation and blacklist individual addresses is a key difference between cbBTC and WBTC. While there are certain privileged controls in the WBTC contract such as the ability to add and remove merchants, the token itself is not upgradable and can only freeze transfers globally, with no ability to target specific addresses. This feature creates some elevated counterparty risk with respect to cbBTC, requiring trust that the blacklist function will not be misused. However it may also make the cbBTC token more sustainable over the long run by reducing regulatory risk. To date we have not seen any cases of similar freezable tokens blacklisting DeFi smart contracts that involve funds from many unaffiliated users (such as decentralized exchange or lending pools), so the risk of the blacklist function impacting Morpho is considered low.
The cbBTC token is based on the existing cbETH token which has been live in production for over two years with hundreds of millions of dollars in TVL. The cbETH contract was audited by OpenZeppelin. No material changes to the token contract were made prior to deployment of cbBTC. While this provides some assurance against faults, it is still possible that cbBTC may encounter technical issues resulting in loss of funds.
Market Parameters
cbBTC/WETH on Mainnet
Loan token: WETH - 0xc02aaa39b223fe8d0a0e5c4f27ead9083c756cc2
Collateral token: cbBTC - 0xcbB7C0000aB88B473b1f5aFd9ef808440eed33Bf
Oracle: Chainlink BTC/USD & ETH/USD - 0x8F653cCFEbA16cF2c0B0D16bc82Bd6756C64f5D4
IRM: Adaptive Curve IRM - 0x870aC11D48B15DB9a138Cf899d20F13F79Ba00BC
LLTV: 91.5%
Supply cap: 10k ETH
cbBTC/USDC on Mainnet
Loan token: USDC - 0xa0b86991c6218b36c1d19d4a2e9eb0ce3606eb48
Collateral token: cbBTC - 0xcbB7C0000aB88B473b1f5aFd9ef808440eed33Bf
Oracle: Chainlink BTC/USD - 0xA6D6950c9F177F1De7f7757FB33539e3Ec60182a
IRM: Adaptive Curve IRM - 0x870aC11D48B15DB9a138Cf899d20F13F79Ba00BC
LLTV: 86%
Supply cap: 20m USDC
cbBTC/WETH on Base
Loan token: WETH - 0x4200000000000000000000000000000000000006
Collateral token: cbBTC - 0xcbB7C0000aB88B473b1f5aFd9ef808440eed33Bf
Oracle: Chainlink BTC/USD & ETH/USD - 0x10b95702a0ce895972C91e432C4f7E19811D320E
IRM: Adaptive Curve IRM - 0x46415998764C29aB2a25CbeA6254146D50D22687
LLTV: 91.5%
Supply cap: 10k ETH
cbBTC/USDC on Base
Loan token: USDC - 0x833589fCD6eDb6E08f4c7C32D4f71b54bdA02913
Collateral token: cbBTC - 0xcbB7C0000aB88B473b1f5aFd9ef808440eed33Bf
Oracle: Chainlink BTC/USD - 0x663BECd10daE6C4A3Dcd89F1d76c1174199639B9
IRM: Adaptive Curve IRM - 0x46415998764C29aB2a25CbeA6254146D50D22687
LLTV: 86%
Supply cap: 20m USDC
cbBTC/EURC on Base
Loan token: EURC - 0x60a3E35Cc302bFA44Cb288Bc5a4F316Fdb1adb42
Collateral token: cbBTC - 0xcbB7C0000aB88B473b1f5aFd9ef808440eed33Bf
Oracle: Chainlink BTC/USD & EUR/USD - 0x565aF16131010d0C2Dce3518bDF7ac0e4E791E0c
IRM: Adaptive Curve IRM - 0x46415998764C29aB2a25CbeA6254146D50D22687
LLTV: 86%
Supply cap: 3m EURC
Next steps
Please feel free to comment or ask any question in this thread or via DMs, we’d be happy to hear and address any questions and concerns you may have and potentially adjust the mentioned listings and parameters.
Changes that are yet to be made (that will be subject of veto with 4 days notice) and that will be made shortly, are next:
-
Setting supply caps on Flagship ETH vault for cbBTC/WETH market from 0 to 10k ETH (Mainnet).
-
Setting supply caps on Flagship USDC vault for cbBTC/USDC market from 0 to 20m USDC (Mainnet).
-
Adding cbBTC/EURC market to Moonwell Flagship EURC vault, and setting the supply cap to 3m EURC (Base).
For live accurate data on Morpho Blue and MetaMorpho refer to our dashboard.
For any questions or feedback feel free to get in touch with us here or on our social platforms.