Offboard wUSDM, mTBILL, wM, SolvBTC from Euler Prime

Euler DAO Markets
1

Summary

This proposal seeks to offboard wUSDM, mTBILL, wM, and SolvBTC from Euler Prime. Based on fundamental and economic indicators, these assets do not meet the high standard mandated by the market. Removing these vaults would reduce the total risk exposure of Euler Prime, making it a more attractive venue for blue-chip lenders and borrowers at a lower risk premium.

This proposal is part of a wider reevaluation of Euler DAO-governed markets.

Background

Euler Prime is Euler DAO’s flagship market on Ethereum. It is the second biggest market on Euler with $121.6M supplied and $51.8M borrowed. The total utilization is 42.6% which is in line with industry averages, indicating organic demand and a balance between the wants of lenders and borrowers. Euler Prime consists of 22 vaults. 13 of them hold less than $1M in deposits combined.

The 4 vaults discussed in this proposal were added to Euler Prime at an earlier stage of the protocol as part of a strategy to onboard riskier assets with select partners aiming to develop a competitive edge. Now that Euler Prime, together with Euler v2, has established itself, these assets present asymmetric risk relative to business opportunity. As of writing this proposal, these vaults contribute only $40k (0.03%) of Euler Prime’s TVL.

Motivation

Euler Prime’s mandate is to be “[a] market tailored to borrowing stable assets against blue chip crypto assets.” After reevaluating the vaults that make up this market, we have concluded that wUSDM, mTBILL, wM, and SolvBTC do not live up to the standards of quality, health, and demand necessary for Euler Prime.

wUSDM

Mountain Protocol’s TVL currently stands at $53.1M and has remained stagnant for the past 11 months. TVL on Ethereum has contracted to $30.1M. Total supply of the yield accruing wrapper wUSDM on Ethereum is 1.95M (~$2.1M), more than half of which is held by the Manta bridge, indicating low demand for collateralization in DeFi. wUSDM supply on Euler Prime stands at $34.4k with only 3 distinct holders.

Sources: DefiLlama, Etherscan (ewUSDM-2)

mTBILL

Midas mTBILL’s TVL currently stands at $4.2M across all chains. Total supply of mTBILL on Ethereum stands at a mere 237k tokens (~$282k). mTBILL supply in the Euler Prime vault stands at $3k. mTBILL brings additional risk from the use of the fixed 1:1 oracle, which would fail to protect against loss of funds in the wrapper. Note that the official NAV oracle cannot be used due to centralization concerns.

Sources: Midas App, Etherscan (emTBILL-2), Etherscan (mTBILL)

wM

M^0’s TVL stands at $124.0M, $81.5M of which is wrapped into wM. 82% of wM supply is held by AMMs and Usual DAO. The bulk of the remainder is held by 3 whales. The Euler Prime wM vault currently holds only $3.6k from 5 holders. M^0’s product is well suited for B2B users like DAOs, issuers and funds, however it has low penetration as a collateral in DeFi. wM brings additional risk to Euler Prime due to the use of a fixed 1:1 oracle, which would fail to protect against loss of backing. There is no suitable third party oracle that can be used as a substitute. wM’s risk profile is better suited for Euler Yield, and removing it from Euler Prime is expected to shift demand to Euler Yield.

Sources: DefiLlama, M^0 Ecosystem Dashboard, Etherscan (wM), Etherscan (ewM-3)

SolvBTC

Solv Protocol’s TVL stands at $2.1B, $162.8M of which is SolvBTC on Ethereum. The holder distribution is highly skewed, with less than $5M held by EOAs. Relative to supply, there is very little AMM liquidity, with a 10 SolvBTC swap yielding only 7.11 WBTC on leading swap aggregators. The Euler Prime SolvBTC vault holds only $6 in SolvBTC. The Solv Foundation did not provide points incentives for this vault and is not focused on growing lending market adoption as a whole. With community concerns about backing and decentralization, SolvBTC is trading with a durable depeg of 15 bps. In summary, while SolvBTC has potential to bring new users to Euler Prime, the reluctance of the Solv team to stimulate lending adoption makes it unsuitable for the market given the risk profile.

Sources: DefiLlama, Etherscan (SolvBTC), Etherscan (eSolvBTC-2)

Offboarding Process

If this proposal passes, offboarding can happen in several steps:

  1. Set supply and borrow caps to 0. This will effectively only allow repayments and withdrawals.
  2. Inform users about the offboarding on public channels.
  3. Ramp down collateral LTVs on offboarded vaults to 0 over 30 days.
  4. Once the vaults hit 0 supply, they can be safely delisted from the UI.

Author

Objective Labs is a service provider for Euler Labs tasked with product development, risk management, and incentive optimization. Objective Labs is Euler-aligned.

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Hey there,

This is Ray the DEFI lead from Solv Protocol. Thanks to Objective Labs to point the issue out.
We’re aware of the current situation with SolvBTC on Ethereum. Since CNY, our focus has primarily been on our TGE, which led to the postponement of most points system integrations for new protocols. However, we’ve now outlined a clear plan to strengthen our positioning on the Ethereum mainnet:

  1. Increased Liquidity: At least $10 million in liquidity for the SolvBTC/WBTC pair will soon be deployed on mainnet DEXes.
  2. Points System Integration: We’ve resumed integration of our Points System and will prioritize adding Euler to the system as soon as possible.
  3. Boosted Liquidity: We’re prepared to provide additional liquidity incentives to strengthen the market.
  4. Enhanced On-Chain Liquidity and Lending: We will significantly improve liquidity and integrations with lending protocols for both SolvBTC and xSolvBTC—our new yield-bearing BTC asset.

As an asset issuer with $2.1 billion TVL, Solv Protocol recognizes Euler as one of our key lending partners. Lending remains a fundamental building block for expanding the DeFi ecosystem, and we are committed to developing more DeFi legos through strategic partnerships.

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Gauntlet generally supports delisting assets that have demonstrated consistently low user engagement in order to reduce the risks induced by liquidity fragmentation. We are aligned with the asset offboarding process proposed by Objective Labs. We also suggest setting borrow LTV to 0, and setting reserve factor to 100% to further disincentivize lingering supply for delisted assets. Given Euler’s efficient liquidation penalty mechanism, we do not anticipate major fallout from a 30-day LLTV deramp.

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Update

Objective Labs no longer recommends offboarding wM.

Since the proposal was posted, M^0’s TVL has increased 28% to $158.2M, and its holder bas has become more diverse. The Euler Prime wM vault still sees very low usage, however the wM vault in Euler Yield has picked up, and is now the second biggest loan asset after USDC. We believe there is a path to making wM in Euler Prime more attractive through parameter updates which will be issued at a later date.

Outside of TVL contribution, wM does not pose substantial added security risk to Euler Prime given M^0’s stringent security and governance processes documented in [M^0’s revised v.1.30 Adopted Guidance] (adopted-guidance/m0_adopted_guidance_v1.30.pdf at main · m0-foundation/adopted-guidance · GitHub) document. The economic risk of using a fixed 1:1 oracle is somewhat attenuated given the existence of a Chainlink NAV oracle that continually reports backing. Furthermore, M^0 is verifiably overcollateralized at 104% which exceeds industry standards.

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