- Sky, formerly MakerDAO, has voted to offboard WBTC over Justin Sun ties.
- The vote garnered significant support from the community.
- At least one other major project is considering removing support for WBTC.
Over the past month, Wrapped Bitcoin (WBTC), the most popular tokenized version of Bitcoin collateralizing billions of dollars in loans across several DeFi protocols, has come under intense scrutiny as its custodian BitGo has announced plans to hand over custody of the asset to a joint venture with BiTGlobal, an entity affiliated with the controversial Tron Founder Justin Sun. The move has raised concerns over the continued transparency and reliability of the asset going forward.
One of the earliest and most vocal critics of the WBTC custody change arrangement has been the leading decentralized lending platform, Sky, formerly MakerDAO. After weeks of consideration, the platform has agreed to take a drastic decision to protect users from potential risks. Will others toe the same path?
Sky (MakerDAO) to Eliminate All WBTC Exposure
Sky, formerly MakerDAO, will offboard WBTC over Justin Sun ties. This decision follows a governance vote that ended on Thursday, September 19. 88% of voters supported it, with the remaining 12% choosing to abstain.
Sponsored
The vote follows a proposal from Sky advisor Block Analitica (BA) Labs. BA Labs had first suggested that Sky reduce its WBTC exposure in August before calling for the total asset removal as collateral on the platform in a September 12 proposal.
The risk analysts argued that despite public statements to the contrary, BiTGlobal was likely controlled by Tron’s Justin Sun through shell companies and nominee directors. The team made this claim by pointing out that the firm lists Yiying “Jennifer” Jiang as a director. This same person is listed as directors for other Sun-linked entities, including the embattled TrueUSD (TUSD) and HTX (formerly Huobi).
Citing the lack of transparency and stability from these entities aligning with Justin Sun’s takeover, BA Labs surmised that there was little assurance that WBTC would not follow suit.
"We conclude that the only reliable way to mitigate risk from WBTC is to pursue a full collateral offboarding," the firm submitted.
Sky has $200 million in loans backed by WBTC. BA Labs’ proposal offers a five-phase roadmap to offboard this collateral with minimal user impact. This roadmap will see Sky reduce its WBTC exposure to zero near the end of November 2024.
Sky may be the first of many to follow this path, as at least one other protocol is considering eliminating WBTC as collateral.
Aave Mulls WBTC Offboarding Proposal
Aave, the largest decentralized lending protocol by TVL, is also considering a move to reduce its WBTC exposure to zero. Risk management outfit Llama Risk submitted a proposal to this effect on Wednesday, September 18, citing roughly the same conclusions as BA Labs.
Whether Aave will move forward with this plan, however, remains to be seen. Some within the community, including the influential Aave Chan Initiative founder Marc Zeller, have opposed total offboarding, calling for a supply cap limit instead.
Aave holds nearly $1 billion in WBTC-backed loans.
On the Flipside
- Despite the recent concerns and Sky’s decision, WBTC’s market cap remains steady at $9.7 billion.
- Justin Sun downplayed his involvement with WBTC as “entirely strategic,” asserting that he had no direct involvement in managing the asset.
- Amid the WBTC uproar, Coinbase has launched a tokenized Bitcoin alternative called cbBTC.
Why This Matters
With a market capitalization of nearly $10 billion, WBTC has established itself as the go-to way for Bitcoin holders to engage in DeFi and benefit from sophisticated yield-bearing strategies.
Read this for more on the recent WBTC uproar:
MakerDAO Protests Justin Sun’s Role in WBTC Custody Changes
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