Lending protocol Sky (formerly MakerDAO) will vote to completely deprecate wrapped Bitcoin (WBTC) from its ecosystem, according to an article posted to a governance forum on Thursday. Since the proposal would affect $200 million in loans on the platform that are collateralized by WBTC, this could become a major development in the DeFi (decentralized finance) space.
WBTC is a wrapped token backed 1:1 by Bitcoin (BTC), allowing investors to use Bitcoin on other blockchains. The token plays an important role as collateral in the DeFi lending space and has a market capitalization of approximately $9 billion.
According to previous reports by Zombit, cryptocurrency custody company BitGo announced last month that it will transfer its WBTC business to a multi-jurisdictional joint venture established in cooperation with Hong Kong-based custody provider BiT Global, forming a joint venture between BitGo, Tron blockchain ecosystem and Tron A "strategic partnership" between founder Justin Sun. This news has triggered concerns among some people in the encryption market, believing that it may face challenges in the DeFi ecosystem.
BA Labs, a DeFi risk management firm influential in Sky protocol governance, had recommended reducing exposure to WBTC due to concerns about the connection between Justin Sun and the custodian of WBTC’s underlying assets. On Thursday, BA Labs proposed a five-step process to gradually remove all WBTC exposure from collateral, with the first step starting on September 26, with votes on each step.
BA Labs stated in the proposal that "we found that legal due diligence did not provide sufficient assurance" and suggested that if the proposal is passed, alternative products should be introduced on the platform.
According to an article published by BA Labs, there are currently approximately $73 million worth of loans on Sky-affiliated lending platform SparkLend that are collateralized by wBTC, while there is $127 million in WBTC-related debt in Sky’s Legacy Vaults. Sky advises WBTC users of Legacy Vaults and SparkLend to close their WBTC positions.
The controversy surrounding WBTC has intensified the activity of competitors offering alternatives, including dlcBTC, Threshold’s tBTC, and FBTC powered by the second-layer network Mantle. Notably, US cryptocurrency exchange Coinbase yesterday announced the launch of its own wrapped Bitcoin, cbBTC.
If you are a user with WBTC collateral in Legacy Vaults (WBTC-A, WBTC-B, or WBTC-C) or SparkLend, please be aware of the WBTC offboarding proposal initiated by @BlockAnalitica.According to the plan outlined by @BlockAnalitica, and pending governance approval, WBTC offboarding…
— Sky (@SkyEcosystem) September 12, 2024
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