Nov 28, 2024
This is an archive of our post on Aave governance forum. Read the full thread here.
Summary
LlamaRisk concurs with @ChaosLabs’ recommendation to postpone onboarding until liquidity depth and distribution improve.
Contract analysis reveals identical asset infrastructure across networks, with Coinbase implementing complete consistency for cbBTC, including:
Same contract address across Ethereum, Base, and Arbitrum: 0xcbb7c0000ab88b473b1f5afd9ef808440eed33bf
Same contract owner address: 0xCe56D20689D836EC7A728CEb94A15746696c16e6
Given this uniformity, all risk factors are identical across deployments: asset risk, technical risk, counterparty risk, price feed risk, and governance risk. The only distinction lies in Arbitrum’s network-specific characteristics, which apply universally to all assets deployed on Arbitrum, not just cbBTC.
Primary consideration: Market risk
Market risk remains significantly higher on Arbitrum, as identified by @ChaosLabs. The Arbitrum network shows markedly lower cbBTC liquidity compared to Mainnet or Base. This creates elevated risk since liquidators must access liquidity on other chains to conduct profitable liquidations.
Source: Chaos Labs Liquidations Dashboard, November 27th, 2024
Although cbBTC liquidations occur across these networks, a higher liquidation penalty may be necessary to ensure liquidators can profitably acquire and exchange collateral on other venues.
While some risk mitigation exists through:
Cross-chain liquidity (notably strong on Mainnet and Base), though non-atomic
Off-chain liquidation options (Coinbase CEX access with KYC for underlying BTC)
The multiple steps required in either liquidation path could create short-term protocol capitalization challenges.
Therefore, we fully endorse @ChaosLabs’ recommendation to defer asset onboarding until liquidity becomes more established and distributed.
Disclaimer
This review was independently prepared by LlamaRisk, a community-led non-profit decentralized organization funded in part by the Aave DAO. LlamaRisk is not directly affiliated with the protocol(s) reviewed in this assessment and did not receive any compensation from the protocol(s) or their affiliated entities for this work.
The information provided should not be construed as legal, financial, tax, or professional advice.