Optimize Euler Prime for BTC/USD borrowing

Euler DAO Markets
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Summary

This proposal seeks to make targeted adjustments in Euler Prime’s configuration to facilitate borrowing against BTC. Our analysis reveals that non-correlated borrowing activity against blue-chip Bitcoin wrappers has surged in popularity. Euler Prime is presently not optimized for this trade, revealing a strategic opportunity to increase the demand in Euler DAO’s market.

Onchain BTC/USD Borrowing

Analysis of the lending landscape reveals that BTC/USD borrowing is very popular yet underserved by Euler Prime. It is interesting to note that there is little to no activity for the inverse trade (short BTC).

Morpho

Top BTC/USD pairs on Morpho account for $690M (40%) of all collateral and $316M (22%) of all borrows. >30% of this activity is attributable to Morpho’s partnership with Coinbase.

Chain Protocol Pair Collateral Borrow LLTV Oracle
Ethereum Morpho cbBTC/USDC $164M $76M 86% BTC/USD
Ethereum Morpho WBTC/USDC $153M $58M 86% WBTC/BTC * BTC/USD, USDC/USD
Ethereum Morpho WBTC/USDT $53M $29M 86% WBTC/BTC * BTC/USD, USDT/USD
Base Morpho cbBTC/USDC $321M $153M 86% BTC/USD

Aave

On Aave we ballpark ~$2.5B in collateral in the Ethereum Core instance used to borrow ~$1B in USD-denominated assets.

  • WBTC on Aave has 78% LLTV, priced using WBTC/BTC * BTC/USD.
  • cbBTC on Aave has 78% LLTV, priced using BTC/USD.
  • LBTC on Aave has 75% LLTV, priced using BTC/USD.

Fluid

Fluid offers a highly competitive 88% LLTV for borrowing USDC or USDT against WBTC or cbBTC.

Euler Prime

Total activity amounts to ~$16M of BTC collateral borrowing ~$9M in stablecoins.

Euler Prime offers 75% LLTV for borrowing stablecoins against WBTC and 80% LLTV against cbBTC and LBTC.

Risk Recommendations

Presently LLTVs for WBTC on Euler Prime are set to 5 percentage points below cbBTC. WBTC FUD has subsided as reflected in the asset’s discount which has shrunk to 4-6 bps relative to cbBTC. Thus we recommend that this penalty be removed. Most notably we recommend a substantial LLTV for borrowing stablecoins and WETH.

LLTVs

Collateral Debt LLTV
cbBTC, WBTC, LBTC USDC, USDT, USDS, wM, USDtb 86%
cbBTC, WBTC, LBTC WETH 84%
cbBTC, WBTC, LBTC wstETH 82%
cbBTC, WBTC, LBTC cbETH, weETH, ezETH, rETH, mETH, rsETH, ETHx, tETH 75%

In line with the rest of the market, we recommend that borrow LTVs be configured two percentage points below LLTV.

Oracles

Currently cbBTC is priced with the Chainlink cbBTC/USD feed, while WBTC is priced with the Chainlink WBTC/BTC feed, crossed by the Chainlink BTC/USD feed. We recommend that both vaults be migrated to fundamental pricing with the Chainlink BTC/USD feed.

This choice is motivated by previous analysis where various BTC wrappers decorrelated briefly during a BTC flash crash that originated on a particular exchange, resulting in liquidations.

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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[Gauntlet] - Parameter Recommendations to Optimize Euler Prime for BTC/USD Borrowing (2025-05-08)

Gauntlet has reviewed Objective Labs’ proposal to update parameters on Euler Prime to better serve BTC derivatives as collateral. We agree that recent trends have bolstered long BTC as an attractive trade, as evidenced by the current collateral usage on platforms including Morpho and Aave. Bitcoin has increasingly positioned itself as a long-term store of value across investor profiles, further spurred by macro events, increasing the importance of optimizing capital efficiency for its derivatives in DeFi.

We agree that sentiment around backing risk of WBTC has been subsiding, as evidenced by its lowered spread against cbBTC, with p95 around 20 bps over the past month with a low average around 6-8 bps as indicated by Objective Labs. Recent delisting of tBTC and eBTC in Euler Prime has reduced long tail exposure to more convoluted bridging and backing mechanisms for staked Bitcoin on EVM.

LTV Recommendations

We believe the LTVs proposed by Objective Labs are generally reasonable and conducive to maximizing risk-adjusted capital efficiency for users. We recommend a few minor adjustments. Our analysis for another listing two days ago showed that the past 30 day’s volatility of ETH/USDC has far exceeded BTC/USDC. We also believe LBTC is better served slightly removed from cbBTC and WBTC, owing to the increased surface area of risk posed by its staking integration and dependency on Babylon.

Borrow LTVs are recommended as two percentage points less than the corresponding LLTVs.

Collateral Debt LLTV
cbBTC, WBTC USDC, USDT, USDS, wM, USDtb 86%
cbBTC, WBTC WETH 82%
cbBTC, WBTC wstETH, rETH, cbETH 80%
cbBTC, WBTC weETH, ezETH, mETH, rsETH, ETHx, tETH 77%
LBTC USDC, USDT, USDS, wM, USDtb 84%
LBTC WETH 80%
LBTC wstETH, rETH, cbETH 78%
LBTC cbETH, weETH, ezETH, rETH, mETH, rsETH, ETHx, tETH 75%

Oracles

We believe the oracle recommendation of market BTC/USD for both WBTC and cbBTC is reasonable under certain views, such as the case where there is large TVL in combined collateral/debt positions. Objective Labs linked to a post-mortem where such a liquidation indeed occurred due to market decorrelation and oracle peculiarity in December 2024. Even as recently as April 16, 2025, sporadic decorrelation has led to liquidation of BTC-derivative collateral/loan positions due to differences in oracle reporting for positions with borderline health, in this case for a LBTC/cbBTC position.

With strong belief in the fidelity of both WBTC and cbBTC’s backing structure, using BTC/USD poses low risk. If the predominant use case however is to pledge either of these against non-Bitcoin assets, then using dedicated WBTC/USD and cbBTC/USD oracles may be more prudent to better protect against long tail market and backing risk. In the typical case using BTC/USD will have roughly the same effect and will also provide more safety against volatility to users with BTC-derivative collatera/debt positions.

Next Steps

  • We welcome community feedback.