Summary
The Morpho team recently deployed a new cbETH/USDC market on Base featuring a Chainlink market price oracle. Block Analitica & B.Protocol, acting as Curator and Allocator of the Moonwell Flagship USDC Vault, have decided to transition from the exchange rate oracle cbETH/USDC market to the new cbETH/USDC market utilizing a secondary market price oracle. The new market listing is intended to strengthen the risk management of the Moonwell Flagship USDC Vault. Apart from the oracle change, all other parameters remain exactly the same as the old cbETH/USDC market using the exchange rate oracle.
Rationale
In our previous research, we have covered the differences between exchange rate and market price oracles for LST pairs. Our analysis indicates that exchange rate oracles are generally more beneficial for LST/ETH pairs, while other markets, including LST/Non-ETH pairs, should ideally use market price oracles.
While exchange rate oracles have their own set of trade-offs, one important benefit is that LST-related exchange rate oracles provide a single source of truth, derived from staking withdrawals. Consequently, the security of an LST/ETH market using an exchange rate oracle is tied to the robustness of Ethereum’s staking infrastructure, rather than the liquidity and stability of an LST’s secondary market. Using an exchange rate oracle for LST/ETH pairs typically provides greater protection against unhealthy positions and bad debt by making users less sensitive to volatile trades and/or secondary market manipulation.
Using an exchange rate oracle for LST/Non-ETH pairs (e.g. cbETH/USDC), on the other hand, may lead to a larger risk of accumulating bad debt before a potential depeg event would normalize. If such an event were to occur alongside a substantial decline in ETH price, liquidating LST/Non-ETH positions with an exchange rate oracle would be more difficult. We find that market price oracles are more suitable pricing mechanisms for LST/Non-ETH pairs that are inherently more volatile. For this reason, we believe that a market price oracle is a better choice for the cbETH/USDC market in the Moonwell Flagship USDC Vault.
To learn more about our research on exchange rate and market price oracles for LST pairs, refer to our report: Analysis of Market Price vs Exchange Rate for wstETH.
Market Parameters
Loan token: USDC - 0x833589fCD6eDb6E08f4c7C32D4f71b54bdA02913
Collateral token: cbETH - 0x2Ae3F1Ec7F1F5012CFEab0185bfc7aa3cf0DEc22
Oracle: Morpho Chainlink - 0xb40d93F44411D8C09aD17d7F88195eF9b05cCD96
IRM: Adaptive Curve IRM - 0x46415998764C29aB2a25CbeA6254146D50D22687
LLTV: 86%
SupplyCap: 20M USDC
Listing and Veto
The new cbETH/USDC market listing was executed on 17/07/2024 09:53:23 AM +UTC. The market will go live once the 4 day (96h) timelock ends.
As a reminder, and as previously mentioned in Introducing Moonwell MetaMorpho Vaults: Next-Gen DeFi Lending, the Moonwell Security Council is the Guardian of the Moonwell Flagship Vaults. If they, for whatever reason, oppose the market listing, they have the ability to veto pending actions in timelock.