Background
State of eBTC
After more than a year since launch and with just $3.7M of incentivized user collateral held by the protocol, it is clear that eBTC has failed to achieve product-market fit.
The primary reason for that, I believe, is that the market for overcollateralized BTC minting doesn’t exist (see: eBTC Lending Market ).
I also believe that, due to fundamental reasons, this market is unlikely to exist in the future, which makes further investment into eBTC development and maintenance unlikely to yield a return for the DAO.
When it comes to deprecating products, the DAO has a vault discontinuation policy that was approved by the Community Council back in 2022, which can loosely be applied here, together with some costs and benefits analysis.
The policy states that unprofitable vaults or vaults with annual profit below $50k should be discontinued.
In the case of eBTC, it is deep in the negative territory.
Before discontinuing the minting incentives, the DAO used to spend close to $5 of minting and liquidity incentives per $1 of revenue, which can be considered as the normal cost-efficiency ratio to expect from the protocol when growing or maintaining TVL.
Currently, it still spends 2:1 on Curve liquidity, while also locking a significant amount of Treasury assets in the protocol CDP and to support liquidity on Uniswap.
Even in the stable state, where just the protocol revenue is directed towards liquidity, it’s still a net neutral product before maintenance costs, which are quite significant for eBTC.
According to the Association’s estimates for Q2, its maintenance costs for running eBTC and other DAO-related items it managed were approaching $2M per year.
While a lot of it can be attributed to the Association’s overhead, it is clear that this state of affairs is not sustainable.
Even if that amount can be reduced by 75%, it is still a bad investment for the DAO, because the chances for eBTC to grow or become sufficiently profitable in the stable state would be minimal.
The Transition Away from the Association
The direction the Treasury Council has taken with TCD 85 and subsequent transition efforts is to drastically reduce maintenance costs and focus spending on developing the new product with a much leaner approach.
Within that approach, keeping the legacy products up & running is hardly advisable, because not only does that imply significantly larger overhead related to security monitoring, it also takes away from the limited developer capacity we have to build the new product.
Overall, fully transitioning eBTC and legacy vaults away from the Association introduces risk, requires significant effort, and the returns are expected to be negative.
Thus, there is little argument to be had to do it - and we should try to keep the maintenance efforts of operating these products to a minimum.
Implementation
The way that minimal maintenance state looks like is still pending technical details with the Association, but the general idea is to:
- Announce to the community that eBTC is being deprecated, and that the DAO will stop providing official UIs to eBTC and legacy vaults after June 30th.
- Make sure that there is enough liquidity available for eBTC users to exit their positions close to peg.
- After June 30th:
- Keep the vital eBTC infrastructure (e.g. oracles) on.
- Stop providing all incentives
- Provide instructions for users how to exit their positions via alternative ways to interact with smart contracts (e.g. Etherscan).
- Keep providing support via badger.com to users who haven’t managed to exit their positions.
The goal with the approach is to minimize disruptions to users as much as possible, while considering the limitation of the UI deprecation after June 30th.
As both eBTC and the legacy vaults are smart contracts that exist on blockchains, users will keep having the opportunity to interact with them and withdraw their funds - and the difference between interacting with the UI and interacting with the smart contracts directly through Etherscan is not that significant, provided a clear instruction is available and support is given upon request.
