BTCB Long Strategy
Risk Category: Low
**This strategy has been deprecated and the vault has been converted to the BTC Looping Strategy**
Summary
The BTCB Long Strategy supplies $BTCB on Venus Protocol to borrow $ETH for depositing into Pendle’s frxETH-ETH pool on THENA for earning yield and rewards. The primary source of profit is $BTCB’s price increase and the surplus amount earned from fees & rewards beyond what is used to cover the loan’s interest expenses. To sustain profitability, the strategy closely monitors and maintains the Loan-to-Value ratio of the loan by either making partial debt repayments or increasing the collateral value.
Introduction
The BTCB Long Strategy is Teahouse’s first strategy on the BNB Smart Chain and earns and calculates yields in base $BTC. This strategy follows the core design concept of the ETH Amplifier Strategy, which utilizes borrowed assets to earn yields while maintaining an ideal Loan-to-Value ratio (LTV).
In this article, we will focus on the reasons behind selecting $BTCB and the BSC chain for launching this strategy.
TL;DR
The strategy adopts the same design as Teahouse’s ETH Amplifier Strategy — using $BTCB to borrow $ETH from the Venus Protocol and deposit into Pendle’s frxETH-ETH pool on THENA for yields and rewards.
Backed by Binance, $BTCB provides the quickest route for bringing Bitcoin into the DeFi ecosystem.
Backtesting results show an APR of 2.97% over a 33-month period and a significantly better yield than holding $BTCB.
Strategy Application
Strategy Overview
Users first deposit $BTCB into Teahouse’s Managed Vault on the Ethereum mainnet. The BTCB Long Strategy then provide the deposited $BTCB to the Venus Protocol, which is used as collateral to borrow $ETH (incurring an annual borrowing interest of roughly 3%). The borrowed $ETH is subsequently deposited into Pendle’s THENA frxETH-ETH pool to generate yields and rewards. The Loan-to-Value ratio (LTV) of the loan is closely monitored and kept within the desired range. More details about the core design can be found in the ETH Amplifier strategy article.
Strategy performance for the BTCB Long Strategy is calculated in $BTCB.
Adopting BTCB
$BTCB is a Binance Chain token pegged to Bitcoin and backed by a $BTC reserve. Another option is $WBTC, also a $BTC-pegged token, but on the Ethereum Chain. Here is a comparison of the two tokens:
Although $WBTC shows better metrics, the decision to use $BTCB instead of $WBTC for this strategy was mainly based on the following two reasons:
User Experience: Given that $BTCB is backed by Binance, it provides the quickest route for bringing Bitcoin into the DeFi ecosystem and a more user-friendly bridging experience. It simplifies the process of converting $BTC to a token that can be used on the BNB Smart Chain and other DeFi platforms, making it more accessible to users.
Diversification: By choosing $BTCB, Teahouse can diversify its Bitcoin position beyond $WBTC. This diversification strategy helps to mitigate risks and ensures that Teahouse’s exposure to Bitcoin is not limited to a single token, enhancing the overall resilience of its portfolio.
For more information, read this quick guide about $BTCB on the BSC Chain.
The BNB Smart Chain
The BNB Smart Chain (BSC) was created by Binance to offer an alternative to Ethereum by delivering a blockchain platform that is fast, cost-effective, and scalable for both dApp developers and end-users. BSC stands out for its user-friendliness due to its significant advantages in fast transaction speeds and low transaction costs.
From a developer’s point of view, BSC also has better scalability and interoperability than Ethereum.
About Venus Protocol
Venus Protocol is a lending protocol forked from Compound and MakerDAO, the former a money market protocol and the latter a stablecoin protocol. Venus Protocol provides both lending/borrowing and stablecoin minting functions, including permissionless lending that operates with a slightly different model than that of Aave.
One of the notable distinctions between these lending protocols lies in how the custodian token is designed to interact with the interest model. In Aave, the custodian balance equals 1:1 of the assets you supplied, and interest is calculated separately. In contrast, Compound’s (and therefore Venus’) custodian token incorporates the interest rate into its exchange rate.
The BTCB Long Strategy utilizes the BTCB pool on Venus Protocol for borrowing $ETH.
Pendle’s frxETH-ETH Pool on THENA
Pendle’s frxETH-ETH pool on THENA is a stable pool that utilizes the V1 stable AMM design. While this pool may not have the most dynamic fee structure, it offers more stability for managing the LTV ratio.
Pendle’s concept is relatively straightforward. It creates yield-bearing tokens that separate the original LP tokens into future yield tokens (YT) and principal tokens (PT). The yield-bearing tokens can be traded on Pendle’s marketplace, allowing Pendle to earn trading fees from Pendle AMM swaps, which are then used to reward the PT providers.
The yield generated from Pendle’s frxETH-ETH pool on THENA consists mainly of the following:
$THE tokens from providing liquidity to the frxETH-ETH pool
PT’s yield earned in the frxETH-ETH pool
LP frxETH-ETH swap fees and $Pendle incentive
Side note: This is not Teahouse’s first implementation of the Pendle protocol. A portion of the assets in the Teahouse ETH Vault are deployed in Pendle’s liquidity pools.
Backtesting & Findings
Teahouse’s Strategy Team backtested this strategy by applying it to the Pendle frxETH-ETH pool between January 2021 and September 2023. Similar to the backtesting of the ETH Amplifier Strategy, we set the parameters assuming there would be no interest charges because we anticipate that the rewards generated from the Pendle frxETH-ETH pool would offset the borrowing fees from Venus.
Note: Backtesting was conducted with an initial amount of 100 $BTCB, a target LTV range of [0.55, 0.65], and a conservative factor of 0.6. These parameters were selected based on our previous simulations. (The simulation results mirror those of the ETH Amplifier Strategy. Please see the ETH strategy page for more details.)
Our Key Findings
The backtesting results show an APR of 2.97% (for a 1000-day backtesting period and a set target LTV of 0.65).
From the graph below, we can see that the average Net Asset Value (NAV) derived from the backtesting results more or less follows the price fluctuations of $BTCB but is slightly higher. This indicates that the strategy will generate more yield than simply holding $BTC. For each $1 USDC, our results show that the average NAV is 0.7966 $USDC, compared to the average $BTCB price of 0.7366 $USDC (over a 1000-day period).
The minimal deviation from the $BTCB price indicates that the strategy has a low volatility, resulting in reduced risk.
The Optimal LTV Range
We tested different LTV ratios during backtesting to find that the optimal liquidation threshold was 0.8 for the backtesting period of January 2021 to August 2023.
The graph below shows several spikes, signifying times when the value of $BTCB drops and the LTV ratio rises. However, even with a target LTV ratio of 0.7, the results consistently remained below the 0.8 LTV liquidation threshold, demonstrating the safety of the model.
Based on these results, we set the optimal LTV range for the BTCB Long Strategy to be between 0.60 and 0.66, creating a conservative, low-risk model.
Comparison to Teahouse’s ETH Amplifier Strategy
Strategy Design
While the BTCB Long Strategy shares its design structure with Teahouse’s ETH Amplifier Strategy, there are a couple key differences beyond utilizing different loan protocols and yield-earning pools.
Unlike the ETH Amplifier Strategy, the BTCB Long Strategy relies solely on yields generated from Pendle’s frxETH-ETH pool, with no additional “backup” pool.
Folding is not employed in the BTCB Long Strategy.
Risk Level
In terms of risks, we categorized the BTCB Long Strategy as a “low-risk” strategy while the ETH Amplifier Strategy is configured and labeled as “high-risk”.
Our simulation and backtesting results show that the BTCB Long Strategy’s optimal LTV ratio ranges from 0.60 to 0.66 (when using $BTCB to borrow $ETH). On the other hand, the ETH Amplifier Strategy’s optimal LTV range is 0.6 to 0.8 (when using $ETH to borrow $USDC). This indicates that the BTCB Long Strategy has a lower volatility, with only a 10% fluctuation compared to the ETH Amplifier Strategy’s ≈30% fluctuation.
Conclusion
The BTCB Long Strategy stands as a significant addition to Teahouse’s portfolio, offering users an innovative means to maximize earnings through $BTCB. Although it adopts the fundamental structure of our ETH Amplifier Strategy, the BTCB Long Strategy distinguishes itself by maintaining a ‘low-risk’ designation, providing a more stable option for our users.
Backtesting results show an APR of 2.97% over 1000 days, maintaining a consistently higher NAV than $BTCB price with minimal deviation, signifying lower volatility and reduced risk.
In essence, Teahouse’s BTCB Long Strategy offers users a secure avenue for potential growth, supported by a diversified asset choice and a meticulously managed risk profile.
Last updated
