Kamino has just launched its cbBTC growth initiative. The goal of this initiative is to rapidly accelerate cbBTC adoption on the platform, while aggressively scaling USDC borrows. To kick off, the initiative will award a weekly 25,000 USDC to users borrowing USDC against cbBTC on Kamino. Rewards amounts can scale as borrow activity increases.
In this post, we dive into:
- The current state of BTC on Solana
- The immense growth opportunity presented by cbBTC
- How Kamino’s Growth Initiative facilitates this growth.
For specifics on how rewards are structured, jump to the bottom section of this post.
cbBTC Launch
Coinbase recently announced the launch of cbBTC on Solana. Since its launch, cbBTC has already grown into the second largest Solana-based BTC asset, with $33M (340 BTC) in circulation.
We believe that cbBTC presents an immense growth opportunity for BTC in Solana DeFi, and as a collateral asset on Kamino in particular. Bitcoin is of course the largest, and by far most in-demand crypto asset. However, to further contextualize the scale of this opportunity, we must first look at the current state of BTC on Solana relative to other ecosystems such as Ethereum.
BTC on Solana
BTC has not yet achieved widespread adoption on Solana. At present, the largest wrapped BTC asset on Solana is WBTC, a wrapped ERC20 token bridged from Ethereum. WBTC currently has a market cap of $272M (2,826 BTC). Of this amount, 8.3% (222 BTC) is deployed into Kamino.
In contrast, BTC has achieved much greater adoption on Ethereum, with over 146,172 WBTC in circulation, of which a substantial amount (upwards of 59,000 BTC—or $5.2B) is deployed across various DeFi venues including Aave, Compound, Maker, Spark, and Morpho.
We believe the relatively lower adoption of BTC on Solana can be ascribed to two primary factors:
- The need for a natively issued wrapped Bitcoin SPL on Solana
- The first-mover advantage of the Ethereum ecosystem in supporting BTC as a collateral asset
The introduction of cbBTC, which is a natively wrapped SPL version of BTC, presents an immense opportunity for BTC growth on Solana.
Scaling cbBTC
Having launched on Ethereum in September, cbBTC has already grown to over $1.5B market cap on Ethereum mainnet, of which over $900M is currently deployed into DeFi money markets like Aave and Morpho. However, cbBTC represents ~20% of the wrapped BTC on Ethereum, with WBTC commanding 60% of market share.
As mentioned earlier, the BTC landscape on Solana is vastly different, and the dominant spot as the leading BTC SPL is very much up for grabs, so to speak.
Given its native SPL issuance, the trusted nature of Coinbase, and the current momentum of Solana DeFi, we believe cbBTC can rapidly scale into the largest BTC asset on Solana, and become deeply entrenched as a collateral asset on Kamino.
Kamino cbBTC Growth Initiative
Kamino’s goal is to scale cbBTC on Solana via an aggressive growth initiative. The goal of this initiative is two-fold:
- Attract cbBTC inflows into Kamino
- Scale USDC borrow against cbBTC
In doing so, we believe that cbBTC’s growth on Kamino can follow a similar trajectory as seen on Ethereum, where over 60% of circulating cbBTC is deployed into money markets.
Initiative Overview
Kamino’s growth initiative will reward cbBTC depositors, with rewards allocated according to the amount of USDC borrowed against cbBTC. Reward amounts will scale as the total amount of USDC debt taken against cbBTC collateral increases.
Rewards Criteria
- A position must contain cbBTC collateral and USDC debt
- In a position with multiple collateral/debt assets, only the weighted amount of USDC borrowed against cbBTC is considered
Rewards Calculation
There are two APY values to consider:
-
Max APY
This is the value shown in the market list, and refers to the maximum possible APY a user can earn on their debt:
farm apy = total rewards per year / total USDC debt backed by cbBTC in market -
User APY
This is the actual rewards a user is earning on their debt based on their collateral/debt composition:
user apy = farm apy * ( user USDC debt backed by cbBTc / total user USDC debt )
Whereuser USDC debt backed by cbBTCis calculated as:
user USDC debt backed by cbBTC = user cbBTC collateral / user total collateral * total user USDC debt
A user’s reward amount thus considers the weighted amount of USDC borrowed against cbBTC in their position, in relation to total USDC borrowed against cbBTC in the market.
We’ll cover a few examples below:
Rewards Examples
Let’s assume the current farm APY (i.e. max possible APY) = 10%
Example #1:
Position with only cbBTC collateral and USDC Debt
- cbBTC Collateral = $100
- USDC Debt = $50
user apy = farm apy * ( user USDC debt backed by cbBTC / total user USDC debt )
user apy = 10% * ( 50 / 50)
user apy = 10%
In this scenario, the user earns the Maximum APY value on their debt. With 50 USDC Debt debt, the user would earn 5 USDC annually. At a 10% Borrow APY, for example, their USDC rewards would offset 100% of their annual borrow cost.
Example #2:
Position with SOL and cbBTC collateral, and USDC Debt
- SOL Collateral = $50
- cbBTC Collateral = $100
- USDC Debt = $50
In this scenario, we first calculate how much of the user’s USDC debt is backed by cbBTC:
user USDC debt backed by cbBTC = ( user cbBTC collateral / user total collateral ) * total user USDC debt
user USDC debt backed by cbBTC = (100 / 150) * 50
user USDC debt backed by cbBTC = 33.33
This means, out of the total 50 USDC debt, 33.33 USDC is backed by the cbBTC collateral. We can then calculate the user’s APY:
user apy = farm apy * ( user USDC debt backed by cbBTC / total user USDC debt )
user apy = 10% * ( 33.33 / 50 )
user apy = 6.6%
In this scenario, the user earns a 6.6% APY value on their debt. With 50 USDC debt, the user would earn 3.3 USDC annually. At a 10% Borrow APY, for example, their USDC rewards would offset 66% of their annual borrow cost.
Example #3:
Position with cbBTC collateral, and USDC and USDT Debt
- cbBTC Collateral = $100
- USDC Debt = $50
- USDT Debt = $20
In this scenario, the user is borrowing at a 70% LTV, but is earning rewards on only the USDC portion of their debt. In practice this comes down to the same calculation as Example #1, where the user earns:
user apy = farm apy * ( user USDC debt backed by cbBTC / total user USDC debt )
user apy = 10% * ( 50 / 50)
user apy = 10%
In this case, the user earns 10% APY, but only on the USDC portion of their debt, so 5 USDC annually. Were the user to switch their USDT debt to USDC, they would be earning 7 USDC annually.
This rewards initiative thus encourages users not only to deploy cbBTC into Kamino, but to borrow USDC against it, thus leading to a net increase in borrow activity on the protocol, and potentially attracting additional USDC deposits.
Conclusion
Bitcoin is an essential part of the on-chain economy, and we believe that, as Solana’s leading money market, Kamino is perfectly positioned to facilitate at-scale BTC activity in Solana DeFi. Kamino’s cbBTC Growth Initiative will be dynamic to market conditions, and as cbBTC supply and USDC borrow activity scales, rewards can scale along with it.
It is Kamino’s view that cbBTC presents a compelling case to become the largest natively issued wrapped BTC SPL on Solana, and the growth initiative will fuel this growth.