KIP-31: Convert renBTC to WBTC

KIPs Final
#1

KIP-31: Convert renBTC to WBTC

links: Github, Snapshot

kip: 31
title: Convert renBTC to WBTC
author: @DaddyMatty
status: final (adopted)
category: treasury investment
created: 2022-08-26
replaces: 
dependencies:

Proposal

Exchange renBTC held in the DAO Treasury for an equivalent amount of WBTC.

References

[1] Treasury Holdings (0x9a67f1940164d0318612b497e8e6038f902a00a4)
[2] renBTC Data
[3] WBTC Data
[4] KIP-19

Background

Summary

This is a treasury maintenance risk-management action motivated by a desire to minimize all potential risk to treasury funds, particularly for non-productive reserve assets held for long periods of time, such as renBTC.

This proposal would exchange the renBTC held in the DAO Treasury (0x9a67f1940164d0318612b497e8e6038f902a00a4) for an equivalent amount of WBTC, which carries less complexity and is a more liquid asset suitable for long-term reserve holdings.

Investment amount and type

This document proposes that the approximately 40.672 renBTC held in the Rook DAO Treasury [1] be exchanged for an equivalent amount of WBTC.

Analysis and Rationale

In regular use, renBTC and WBTC are nearly equivalent in that they should entitle the bearer to redeem BTC 1:1. However there are a number of reasons for the DAO to prefer to keep its BTC holdings in WBTC at this time.

As of August 26, 2022, WBTC is far more liquid, with a circulating supply of 247,760 WBTC, more than 73 times higher than the total supply of 3,394 renBTC. WBTC also experiences far greater daily trading volumes, more than $250,000,000, 31 times higher than the $8,000,000 of volume traded in renBTC [2,3].

Recent regulatory developments have made it clear that the potential exists for eager regulators to impose controls that could render the DAO unable to recover the underlying BTC from a wrapped asset. In such a scenario, liquidity on a secondary market would be an important factor for recovering the value of the wrapped asset for the DAO. Given this, we cannot ignore the vast disparity in liquidity between these two derivatives of BTC.

The DAO Treasury originally held renBTC in order to seed the renBTC liquidity pool, which helped incentivize renBTC liquidity and volume by enabling zero-cost flash loans with the asset. This was done in line with our longstanding partnership with the Ren protocol, a partnership that continues today.

However with the sunsetting of the Rook liquidity pools [4], and the removal of DAO Treasury renBTC liquidity from them [4], our thoughts must turn towards long-term risk management as the primary measure of any reserve asset.

Expected benefits for Rook

The expected benefits of this proposal are as follows:

  • Increased liquidity in the event the DAO chooses, or is driven by necessity, to liquidate the asset.

Implementation

Execution

See the “Specification” section for execution details.

Monitoring and Reporting

The Treasury Team will continue to monitor the position as part of its ongoing monitoring of the DAO’s portfolio.

Specification

Specific steps to be taken, in bullet point form

  • DAO Treasury (0x9a67f1940164d0318612b497e8e6038f902a00a4) to send approximately 40.672 renBTC to execution wallet (0xa41164009fa1021ac3cff34813e461ca445d0712) controlled by CTO to execute swap
  • Exchange the approximately 40.672 in the DAO Treasury for an equivalent amount of WBTC at prevailing market prices using the Rook Protocol (https://app.rook.fi/en/trade)
  • Return funds from execution wallet (9fa1021ac3cff34813e461ca445d0712) to DAO Treasury (0x9a67f1940164d0318612b497e8e6038f902a00a4)
  • Rook rewards generated from the swap will be claimed and transferred to the Treasury at a later point
  • Report back to DAO the results of the swap
2 Likes
#2

Edit - Within the Specification section I made the following addition:

“Rook rewards generated from the swap will be claimed and transferred to the treasury at a later point”

#3

Thanks for bringing up this topic Matt.

I disagree here. Liquidity for renBTC isn’t applicable for minting or redemption, Ren is a custodian with no limits for a mint/burn. I would say that third party dapps are more likely to support WBTC due to its marketshare, but these assets are currently idle anyways. Liquidity here and here is plenty for liquidating a portion of renBTC if need be.

I classify WBTC and renBTC very similar in respect to regulatory risk. I believe the risk for renBTC would be the treasury becomes blacklisted by OFAC and the DAO is unable to use the bridge back to BTC. I can’t speak on WBTC but I suspect a similar case there.

I’m also very much against liquidating BTC into ETH, we already have 28% of our treasury in ETH and only 6% in BTC.

I’d much prefer to see our BTC spread across at least two wrappers and even some in native BTC.

Disclaimer: I like Ren.

1 Like
#4

I support this proposal. I think that having our assets stay as liquid as possible is important.

The treasury is unable to move at the same speed as individuals. As such, if there were an issue that required us to trade into another position it is possible that the current LP would dry up before we were able to exit (much like what happened with our Maple position).

I could be convinced that we should hold renBTC and WBTC so that our entire position isn’t in one or the other. However, if the entire position is going to be in one I think it makes a LOT of sense to have it be in the more liquid token.

#5

I do not support this proposal. With the recent facts regarding regulation and TC, I think WBTC is more susceptible to censoring acts. RenVM is very close to be fully decentralized . Also, like Wes mentioned, I do not think liquidity is an issue with RenBTC, there is enough liquidity, but additional, each RenBTC can be burned for hard BTC, it is permisionless, so, no risk in there.

#6

There is not risk to “dry up” RenBTC. You always can burn RenBTC for BTC

#7

Welcome @PonsTJ ! As mentioned in the Discord discussion, I think liquidity could be more of an issue in this case than it first appears.

You are right that both renBTC and WBTC provide a way for you to “unwrap” the underlying BTC, and so liquidity should not be the issue. And I think we both agree that if a regulator were to target one or both of renBTC or WBTC, they would almost certainly target the ability to “unwrap” the renBTC or WBTC.

And it is also true that because renBTC is decentralized, and WBTC is not, we will be more likely to unwrap the BTC if it is held in renBTC, versus if it is held in WBTC.

All of that is true, but the key factor here is that while it would still be feasible to unwrap the renBTC, i.e. it would not technically be prevented by anything inherent on the blockchain, that does not mean it is something we would want to do. Because it would likely be considered a criminal act by the regulating authority. Because of this, whether it is decentralized or not, whether it is renBTC or WBTC or something else entirely, we likely would not be able to unwrap anything without putting the DAO at regulatory risk.

Instead we, like probably everybody else who holds renBTC or WBTC in this scenario, is going to try to get rid of their renBTC or WBTC on the open market. And since our DAO alone is holding close to 4% of the entire renBTC supply, it’s possible we could lose a good deal more value than if we were swapping WBTC.

You could make a counter-argument that renBTC is more likely to keep peg due to the fact that arbitrageurs who don’t care about regulations will buy it at a small discount and unwrap it to claim the BTC, come what may. That is possibly true but here the marketcaps and numbers are so different that it’s hard to imagine liquidity not playing a dominant role.

Again, this regulatory scenario is only one of the possible reasons to prefer the more liquid asset. There are others as well. But since it no longer really benefits us or Ren in any special way to hold this, it seems logical from a risk perspective to prefer the wrapped BTC which is the most liquid and widely used.

That’s how I looked at it anyway, I’m happy to continue the discussion.

2 Likes
#8

I agree with the proposal.
The main reason is that I don’t see any benefits to hold renBTC instead of WBTC.
We all know that WBTC is way to liquid than renBTC and as stated by @hazard the treasury is holding 4% of the entire supply of Ren.
The most decentralized model would be tbtc, but is a complete failure in terms of liquidity.
If there is no way for the treasury to hold real Bitcoin in a multi-sig Bitcoin wallet, I would agree to swap renBTC for WBTC.

#9

This proposal was discussed in detail (and the discussion announced in advance) during the Aug 31 Governance Workshop. @hazard and @DaddyMatty described the rational for the proposal and answered questions from participants, who arrived at soft consensus with the proposal. For more information, consult the recording and summary here: Governance Workshop - August 31, 2022

#10

This proposal has been analyzed by the Rook Sophons. In light of the discussions detailed above, the Sophons reached a consensus of “No objection” in response to this KIP. One Sophon noted that they would oppose any subsequent swap from BTC to ETH, though such a swap is outside the scope of this proposal so the consensus remains “No objection”. This KIP will go to voting on Snapshot on 2022-09-14.

#11

EDIT: This proposal has been revised to reflect a reduction in the total amount of renBTC to be swapped to WBTC. This reduction is due to a discretionary transaction undertaken under the aegis of KIP-23. In keeping with that KIP’s reporting requirements, @hazard posted an explanation of the trade and its rationale on Discord in the announcements channel.

#12

Voting is now finished on Snapshot, with roughly 16,000 ROOK voted No objection and 317 ROOK voted Object. The measure is adopted.