In our latest Space, we discussed swBTC security with Risk Guardian Gauntlet, and battle tested vault protocol, Yearn.
Swell Chief Commercial Officer Kilian Boshoff was joined by Corn from Yearn and Carson from Gauntlet.
In case you missed it, here are the top questions from the event.
What is Swell BTC?
"Swell Restaked BTC (swBTC) is a yield-bearing liquid restaking token that offers liquidity for users who want to stake their wrapped BTC into restaking protocols such as Symbiotic, EigenLayer, and Karak, without locking their position.
swBTC is a receipt token that can be used throughout DeFi, whilst earning AVS yield across the various different restaking platforms.
Swell’s overall thesis is that all roads lead back to Ethereum. We believe that over time, more BTC will come to Ethereum and we now have this structured product to capture that."
— Kilian, Swell
Explain the technical architecture behind swBTC
"Swell BTC (swBTC) is built on Yearn’s v3 battle-tested vault product, with vault strategy powered by Gauntlet's Aera.
Once a user deposits WBTC in the vault, Risk Guardian Gauntlet makes risk-adjusted decisions for the WBTC to be allocated into the various restaking platforms and utilized as economic security in either Symbiotic, Karak or EigenLayer to generate yield."
— Kilian, Swell
How are the allocation decisions made?
"One of the reasons we decided to use Aera was because it offers flexibility regarding depositing into other restaking platforms once WBTC is added as collateral. When it comes to these decisions, there are two phases: how to make the decision now, and how to make the decision in a few months once we see AVS’s and networks go live.
At the moment, the risk-adjusted decisions come from where WBTC can be parked to get the most return for swBTC depositors. In the future it will become a more nuanced decision on where we can get the most access to the AVS’s looking for the most exposure to WBTC collateral. When it comes to AVS allocation decisions, it is where we get into the nuance of maximizing risk-adjusted yield and making sure that the allocation and delegation is properly isolated where needed, so that risk can be properly mitigated all whilst still being able to get exposure to protocols providing yield.
When it comes to pulling security, you need to think about how to manage risk, how are you pulling or isolating that security, what portion of the collateral asset are you allocating, how are you adjusting for slashing risk and yield volatility, what assets are accruing yield, and what is the volatility of those assets so that they can compounded back into WBTC to maximize the return. Being able to do this across multiple restaking platforms provides a lot more flexibility and strength in being able to achieve the best risk adjusted yield for WBTC, instead of isolating it to a single ecosystem."
— Carson, Gauntlet
What are the advantages of building on Yearn v3?
"Yearn v3 has been live for just over a year now, and has gone through a number of live integrations and use cases of it being a great asset allocator. This is one of the deployments that I am most excited about because it takes the concept of being an asset allocator, and turns it into a structured product."
— Corn, Yearn
Why did you choose to accept WBTC?
"Wrapped BTC is the largest and most liquid form of BTC on Ethereum, so from a market perspective there is no second best. Restaking platforms need demand for the asset, which isn’t just TVL in a protocol. AVS’s and networks need to sign up and consume BTC security of which there is only enough in WBTC. These factors influenced the decision as to why we chose WBTC as the deposit asset."
— Kilian, Swell
"When AVS’s and networks are looking for a collateral asset to provide security to their network, the liquidity depth is extremely important because if it has soft liquidity, there is a higher probability or lower cost to create a deviation from the price, essentially depegging the asset. This potential depeg is a major risk to the networks that are getting security from the asset, because it gives someone a way to enter in at a lower price, dominate the position and then potentially exploit it.
Deep liquidity is thus paramount to any restaked asset and that is why WBTC is so attractive as it is one of the most liquid tokens in Ethereum’s ecosystem. This provides Networks with the confidence to get what they are looking for."
— Carson, Gauntlet
What's next for swBTC?
"We have a number of integrations live for swBTC deposits, including Curve, Morpho, Avalon, and PancakeSwap, as well as pre-deposits in Swell L2. We also have a number of integrations going live soon such as Pendle and CurveUSD, and once there is enough liquidity we will be working on integrating with Compound and AAVE. Essentially wherever you can use WBTC, is where you will be able to use swBTC.
We are very excited because there has never been a driver behind wrapped BTC to find integrations and create these strategies that you can take part in, but swBTC is going to kickstart different activities on Ethereum with the BTC asset."
— Kilian, Swell
What can you tell us about restaking rewards?
"Symbiotic will go live on mainnet in September, and with that will come payments, slashing and rewards. Depending on when the other restaking platforms go live is when users will see yield start to flow. We place a lot of emphasis on this because without rewards swBTC is just a wrapper.
We have lined up a number of integrations and relationships with different AVS’s so that we can generate yield for users as soon as possible."
— Kilian, Swell
Thanks to everyone who attended the event!
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