Sky, formerly known as MakerDAO, announced a vote to divest WBTC from all its loan and collateral facilities. Removing WBTC was discussed earlier as a form of risk mitigation due to uncertainties with the asset’s multi-sig wallets.
Spark Lend and Sky, formerly MakerDAO, will remove WBTC from its asset mix after a community vote. The call to remove WBTC from the mix comes after the asset’s custodian, BitGo, decided to redistribute three of the multi-sig wallets to third-party institutions. The handover of some of the multi-sig keys is expected on October 8, and Sky will try to de-risk collaterals by that point.
WBTC has been a significant source of yearly earnings from vaults, but is now considered at risk of contagion or loss of reputation for Sky and Spark Lend.
In the initial stage, users will be able to unwind their loan positions. But Sky is dedicated to erasing all WBTC from its debts, so a second stage has been proposed, where the conditions for liquidations will become more strict, force-liquidating all outstanding loans. In the worst-case scenario, Sky will liquidate all outstanding loans in the span of three weeks.
The voting proposal coincided with the live launch of Coinbase BTC (cbBTC) on September 12. The asset will be available to replace the positions on Sky Lend. There have always been attempts to create new forms of wrapped tokens, though most are considered riskier and are less active. Wrapping BTC is a compromise decision, which creates significant counterparty risk.
The worries come from BitGo’s decision to partner with Tron’s founder, Justin Sun. BitGo has claimed Sun has no way of moving or controlling the underlying BTC reserves. However, Sky still decided to move to Coinbase-wrapped BTC (cbBTC). Justin Sun has denied any control over private keys or the ability to move the underlying BTC, stating his participation in the project is strictly strategic.
For MakerDAO, WBTC collateral supports $200M in DAI loans. Even before offloading, the lending protocol did not consider WBTC a Native Vault Engine asset and has called for unwinding whenever appropriate.
The debt collateralized with WBTC is split between $73M on Sky Lend and $127M in legacy vaults from MakerDAO. The legacy debt has decreased from $155 million in late August, shortly after the first concerns about WBTC emerged.
The crypto community has also started a wider petition to stop the shift of WBTC to BitGlobal custody with added counterparty risks.
WBTC is still the leading asset on Ethereum
Even with divestment from MakerDAO, WBTC is one of the most influential wrapped form of BTC. More than 96.6% of BTC on the Ethereum chain is in the form of WBTC, spread across multiple protocols.
WBTC has become more distributed and decentralized over the past year after initially having most of its supply on Ethereum. Lately, WBTC has also flowed into Solana for bridging and is highly active on Optimism and Arbitrum. WBTC is spreading aggressively to smaller chains as well as influential platforms like Base. Tokenized BTC is also available for DEX swaps, forming some of the most liquid pairs. Paradoxically, the high number of users on L2 chains and Solana does not account for the largest value transfers of WBTC. Ethereum still serves as a settlement layer, with Arbitrum in the second place.
So far, WBTC has not spread into the TRON ecosystem, which has previously sparked skepticism on the availability of organic users and volumes. Previously, Tron has shown problems with its USDD stablecoin, which de-pegged on several occasions. Using WBTC on Tron is creating new suspicions of contagion, as well as non-organic activity.
The other concern for WBTC is that its supply has been fragmented and moves with little warning to all counterparties. Known addresses of BitGo and wrapped BTC vaults hold a total of 153,205 BTC with a custodian. The coins have been held with a US-based custodian, and the shift to BitGlobal with a new set of multi-sig keys is creating worries in the community.
Currently, the WBTC project provides transparent proof of assets and has not caused contagion or issues for the wider ecosystem. Even now, WBTC is controlled by a single entity, with its reserves spread across different addresses. To complicate matters, WBTC also exists in bridged and native form on some chains, making it even more difficult to unwind.
Cryptopolitan reporting by Hristina Vasileva
