[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.