Summary
The objective of this proposal is to integrate Eureka Bridged Wrapped Bitcoin (WBTC) as a collateral asset on the Neutron Outpost of the Red Bank. Incorporating this asset could enhance the utility and liquidity of the Red Bank while supporting Neutron’s Bitcoin Summer initiative.
Motivation
IBC Eureka is the canonical implementation of IBC v2 that enables seamless interoperability between Cosmos and Ethereum ecosystem (see docs). As the first implementation of IBC V2, Eureka uses light clients - the most secure standard for cross-chain transfers - and enables tokens like WBTC to move between networks without relying on traditional bridges.
Unlike traditional bridge solutions, IBC Eureka provides:
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Native and Secure Interoperability: Direct chain-to-chain communication without intermediaries.
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Direct Cosmos ↔ Ethereum connection: transfer assets like WETH, WBTC, or USDT without relying on external bridges.
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IBC Distribution Zone: access the entire Cosmos ecosystem without deploying additional infrastructure.
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Lower Costs: No bridge fees and minimal transaction costs.
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Native Integration: Seamless interoperability within the Cosmos ecosystem.
WBTC is the Eureka-bridged version of Wrapped Bitcoin on the Neutron chain which is actively utilized across multiple protocols on Neutron:
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Supervaults: maxBTC-WBTC and WBTC-USDC positions with automated liquidity provision
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Duality: Orderbook integration for enhanced capital efficiency
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Astroport: Active liquidity pools including WBTC-USDC and WBTC-maxBTC pairs
WBTC actively participates in Neutron’s ongoing Bitcoin Summer campaign, a multi-phase initiative to position Neutron as a hub for Bitcoin-based DeFi, which aims to attract significant Bitcoin capital.
While on-chain liquidity is currently developing (~$1M in total), further growth is expected as the Bitcoin Summer campaign scales and IBC Eureka adoption increases.
The widespread adoption and robust liquidity infrastructure make WBTC a good candidate for listing on the Red Bank. This listing will enable the Red Bank to broaden its offerings, support Neutron’s Bitcoin-focused ecosystem, and potentially improve utility for both borrowers and lenders.
Risks
The following sections cover some known risks of listing the token.
Technical Risk
As IBC Eureka is a relatively new protocol (launched Q1 2025), the bridge mechanism carries inherent technical risks.
| Metric | Requirements | Comments |
|---|---|---|
| Time Since Launch | Minimum | IBC Eureka launched in Q1 2025 and has been successfully processing mainnet transactions. |
| Custom Public Audit | Not met | We haven’t been able to find public audits specifically for IBC Eureka/IBC v2 implementation. IBC Eureka is built by the Interchain Foundation with extensive experience deploying IBC v1. The underlying WBTC asset has undergone multiple security audits available through the WBTC DAO. |
| Recent Audit | Not met | No public audits for IBC Eureka were found at the time of this proposal. |
| No critical vulnerabilities | Ideal | No critical vulnerabilities have been exploited in IBC Eureka to date. |
| Bug Bounty Program | Not met | We couldn’t find any information about an active bug bounty program specifically for IBC Eureka. The Cosmos ecosystem has bug bounty programs through HackerOne and ImmuneFi. WBTC has security measures through BitGo’s institutional custody infrastructure. |
Centralization Risk
IBC Eureka itself is a decentralized mechanism, but WBTC (the underlying asset) relies on centralized custody through BitGo.
BitGo manages the Bitcoin reserves backing WBTC tokens 1:1 Peg Mechanism: Each WBTC represents one Bitcoin held in custody. Proof of Reserves: Regular attestations verify the backing.
While the bridging mechanism via Eureka is trust-minimized, users remain exposed to WBTC’s custodial risks inherent to the underlying asset. This is an accepted trade-off as WBTC is a mature, widely-adopted asset in DeFi with proven custody practices.
| Metric | Requirements | Comments |
|---|---|---|
| Owner Decentralization | Ideal | IBC Eureka is governed by the Interchain Foundation and Cosmos Hub governance. IBC operates without centralized control, using light client verification for trust-minimized cross-chain transactions with no multisig dependencies. |
| Admin Decentralization | Not met | The initial rollout of IBC Eureka uses permissioned relayers operated by Skip Protocol for additional safety and security guarantees. While the IBC light clients are still used for cryptographic verification (maintaining the security model), the permissioned relay set means liveness is dependent on these operators. Permissioning is planned to be removed in the near future. The underlying WBTC asset is controlled by BitGo as custodian. BitGo is a regulated, qualified custodian with institutional-grade security. Details of WBTC’s merchant network can be found on the WBTC DAO website. |
| Other permissioned addresses | Partially met | WBTC minting and redemption are managed by authorized merchants through BitGo’s custody system. Regular on-chain attestations verify 1:1 backing of WBTC to BTC. The IBC Eureka protocol itself has no trusted validator sets or multisigs for security verification, relying instead on light client cryptographic proofs. |
Oracle Risk
To grasp the bridging and oracle risks linked to WBTC, it is essential to first comprehend the process of wrapping native Bitcoin and bridging it to Neutron.
When a user transfers native Bitcoin to BitGo, the underlying Bitcoin is stored by BitGo, which then issues a new ERC-20 Wrapped BTC (WBTC) to the user on the Ethereum network. This Bitcoin is securely held in reserve by a regulated custodian with institutional-grade security and insurance coverage.
After obtaining the ERC-20 WBTC token on the Ethereum network, users can transfer it to the Neutron chain using IBC Eureka. IBC Eureka implements the full IBC light client security model, where each chain runs a light client of the other chain, enabling cryptographic verification of state transitions. The WBTC is transferred via light client verification, and the Eureka-bridged equivalent (WBTC) is made available on Neutron as a native asset in the bank module.
The initial rollout of IBC Eureka uses permissioned relayers for additional safety. While light clients are still used for security verification, this means liveness is currently dependent on the permissioned relay set. Permissioning is planned to be removed in the future.
With multiple layers involved in the process of wrapping and transferring tokens between different ecosystems, there is potential for vulnerabilities. If an exploit were to occur at the WBTC custody level, it would compromise the 1:1 backing of the wrapped tokens, may subject the wrapped tokens to significant market volatility and place the solvency of the Red Bank at risk.
We propose to use the Pyth WBTC/USD price feed. The Pyth oracle has been successfully integrated with Mars Protocol and other major DeFi protocols on Neutron, providing reliable price data.
Liquidity Risk:
Current total on-chain liquidity: $960k:
Astroport:
USDC-wBTC: $200k
wBTC-WBTC.axl: $90k
Supervault (integrated to Duality Orderbook):
maxBTC-WBTC: $400k
WBTC-USDC: $275k
Given that IBC Eureka and WBTC are relatively new (Q1 2025 launch), on-chain liquidity is still developing. Liquidity is expected to grow as:
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More users bridge assets via IBC Eureka
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Bitcoin Summer incentives attract capital
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Integration with Mars Protocol creates additional utility
To cover potential liquidation risks related to the lack of liquidity, initial deposit caps are set conservatively (~50% of on-chain liquidity). The deposit cap can be increased by the Risk DAO as the market matures and liquidity deepens.
Risk Parameters Suggestion
The following parameters are the same as those for WBTC.axl and follow the guidelines suggested by the Mars Risk Framework.
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Max. LTV: 78%
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Liquidation LTV: 80%
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Deposit Cap: 4 WBTC (to be increased as liquidity and usage grow)
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Interest Rate Parameters:
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Optimal Utilization: 60%
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Base IR: 0%
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Slope 1: 10%
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Slope 2: 300%
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Liquidation Bonus: 10%
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Reserve Factor: 10%
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Usable as collateral? Yes
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Available to borrow? Yes
Implementation
This is a signaling proposal, not an executable proposal.
The Mars smart contracts on the Neutron chain are currently controlled by the Builder Multisig address. If this proposal passes, the builders will utilize their multisig to make the necessary parameter changes.
Copyright
Copyright and related rights waived via CC0.
Disclaimers/Disclosures
This proposal is being made by Mars Protocol Foundation, a Cayman Islands foundation company. Mars Protocol Foundation engages in research and development of the Mars Protocol. Mars Protocol Foundation and certain of its service providers and managers own MARS tokens and have financial interests related to this proposal. The aforementioned persons or their affiliates may also have financial interests in complementary or competing projects or ecosystems, entities or tokens, including Neutron/NTRN and WBTC. These statements are intended to disclose relevant facts and to help identify potential conflicts of interest, and should not be misconstrued as a complete description of all relevant interests or conflicts of interests; nor should they be construed as a recommendation to purchase or acquire any token or security.
This proposal is also subject to and qualified by the Mars Disclaimers/Disclosures. Mars Protocol Foundation may lack access to all relevant facts or may have failed to give appropriate weighting to available facts. Mars Protocol Foundation is not making any representation, warranty or guarantee regarding the accuracy or completeness of the statements herein, and Mars Protocol Foundation shall have no liability in the event of losses or damages ensuing from approval or rejection or other handling of the proposal. Each user and voter should undertake their own research and make their own independent interpretation and analysis of all relevant facts and issues to arrive at their own personal determinations of how to vote on the proposal.