Introducing cBTC: A Fresh Take on Bitcoin-Backed Assets

Hey all, Just dropping a concept here called cBTC, looking for your thoughts. It's like a Bitcoin-backed stable asset, but with a twist. I’m hoping to get some solid feedback from everyone.

My biggest issue is calling it "stable". There’s no peg to anything like USD, so cBTC is basically just another kind of BTC, right? If it’s redeemable for 0.3 BTC, then when BTC drops, cBTC drops too. It’s smoother than borrowing at high LTV, but not really stabilizing purchasing power. Feels more like a low-vol BTC rather than an actual stablecoin.

Hey BattleDog, You nailed it! This is more like a Bitcoin-backed monetary system instead of a traditional stablecoin. The LP's BTC goes into a non-custodial vault, so they never lose their BTC, it’s all secured. But yeah, you’re right, it’s not a stable value token.

Interesting idea, but "stable" could use a better definition. Without an external peg, cBTC won't really eliminate volatility, just soften it. The 30% LTV helps avoid liquidation, but in a bear market, cBTC will still drop. Smoother exposure could be good for liquidity or treasury management, though.

Thanks for breaking that down, Donneski. Totally agree, cBTC is indeed not your typical stablecoin. It’s a kind of synthetic BTC that’s less volatile but doesn't guarantee stability in fiat.

What you're describing sounds like Liquid bitcoin but with a different name. Did you check L-BTC? Basically, cBTC is undercollateralized which I don't see as being "more stable". If 1 cBTC is backed by 0.3 BTC, it should go up if BTC goes up.

If they pay yield in BTC, how do LPs redeem all their BTC? In a few years, will they just lose it all?

Hey odolvlobo, Great question! The LP's BTC is never touched for yield. It stays available minus a small fee. The yield comes from the cBTC holders paying fees when they mint cBTC.

Came across Liquid before. cBTC is a whole different thing. Liquid is custodial at 1:1 ratios while cBTC aims to offer reduced volatility without any pegged status.

Got it, thanks for clarifying. I noticed some math in your paper, but it was confusing. Are you using a standard format? Seems inconsistent.

A Bitcoin derivative could be cool. But have you thought about fixed fees instead of annual rates? Might be more competitive. Plus, insurance options like on Aave could bring extra security in case of a crisis.

Sorry, just trying to wrap my head around all this. If minting is low, how does the yield pool get paid? And what's the deal with oracle prices affecting market prices?

I really appreciate your feedback on those math expressions, I'm working on it. Yeah, I mixed up some formats, will clean that up next time. Some variables weren't defined either, I'll fix that.

One issue with fixed fees vs annual rates, you’re spot on. The 15% isn’t flat, LPs need to stake for a year to get that. Short-term liquidity won’t earn as much, protects the system.

Seems interesting but unclear if it’ll work. Biggest worry is if cBTC could just mirror BTC prices. As BTC falls, could cBTC become risky?

Thanks for your thoughts, d5000. cBTC isn’t designed to track BTC closely. It’s more market-driven, focusing on its actual utility rather than just collateral ratios.

Thanks for clarifying. I’m concerned about this scenario: If we mint lots of cBTC while BTC is steady, what happens if BTC then crashes? Will the collateral hold?

Your scenario makes sense but assumes cBTC behaves like other pegged systems. cBTC has no oracle, so no cascading effects like that. Collateral matters for redemptions, not market prices.

No peg assumption is true, but cBTC's goal is to be less volatile than BTC when it’s overcollateralized. In bear markets, will volatility rise as the collateral weakens?

Thanks for the insight! Just making sure we’re clear: cBTC is meant to be a credit layer above BTC, not to have the same value over time. Under-collateralization isn’t a flaw; it’s part of the credit model.