Author: Nancy, PANews
In order to diversify WBTC's custody and cold storage business across multiple jurisdictions, crypto asset custodian BitGo recently announced that it will create a joint venture with BiT Global to provide multi-jurisdictional custody of WBTC, and the institution will become a minority shareholder in the new joint venture.
Given the uncertainty of Justin Sun’s control over the joint venture BiT Global and the risks of previous projects such as the opacity of the project, the news aroused strong concerns in the industry as soon as it was announced. The largest acceptor MakerDAO also initiated a proposal to reduce the size of WBTC collateral.
WBTC custody change sparked controversy, Justin Sun came out to clarify BitGo responded to security questions
On August 11, BitGo officially announced that it would move its WBTC business to a joint venture with BiT Global. The new plan will use the same BitGo multi-signature technology and cold storage technology that has been used to protect Bitcoin since 2019, with a transition period of 60 days. Although BitGo emphasized that this move will be seamless and transparent to the WBTC community, the potential risks of this change in custody rights still triggered a crisis of trust in the community.
On the one hand, the connection between BiT Global and Justin Sun is believed to bring uncertain risks to WBTC. According to the BitGo announcement, BiT Global is a regulated trust and corporate service provider (TCSP) headquartered in Hong Kong, and has a strategic partnership with Justin Sun and the Tron ecosystem. However, the "gold content" of this licensed company does not seem to be high. According to the official website of the Hong Kong Companies Registry, as of August 12, there were 6,882 TCSP licensed companies.
"Since TUSD was placed under the 'control' of Justin Sun, its market operation processes and transparency have continued to deteriorate, including the resignation of the former management team, the suspension of real-time reserve proof, and major decoupling due to multiple redemption service interruptions. Projects related to Justin Sun also show worrying signs of possible misappropriation, such as replacing Huobi's USDT reserves with stUSDT. The RWA project stUSDT controlled by Justin Sun claims to hold U.S. Treasury reserves but cannot provide clear audit or evidence." BA Labs, a crypto risk analysis and assessment agency, pointed out.
In response to the concerns of community users, Justin Sun tweeted to clarify that WBTC has not changed at all compared to before. The audit is conducted in real time. The minting process is entirely managed by custodians Bitglobal and BitGo according to the same procedures as before. In short, Bitglobal and BitGo will not sign any unaudited transactions. The keys are still protected using the same BitGo cold wallet technology and offline keys as before, and are backed up in multiple countries and regions. He also emphasized that "my personal participation in WBTC is purely strategic. I do not control the private keys of the WBTC reserves, nor can I move any Bitcoin reserves."
BitGo CEO Mike Belshe also responded, "BiT Global has a whole team of people managing multiple customer accounts, and they are responsible for keeping them properly. They cannot loan out funds, and they cannot give funds to Justin Sun, me, or anyone else at will, otherwise they will break the law and go to jail. In terms of certification, we have always owned wbtc.network, which will continue to operate." Regarding Maker DAO, Belshe expressed his willingness to assist in due diligence to alleviate any concerns.
On the other hand, as an important custodian of WBTC, BitGo's business transfer behavior has also aroused community concerns. Prior to this, BitGo's financial situation has been questioned many times. For example, after the FTX bankruptcy at the end of 2022, although BitGo claimed that it had no risk exposure to Alameda or FTX, it subsequently reported that it planned to raise new funds at a valuation of US$1.2 billion, and completed US$100 million in financing at a valuation of US$1.75 billion the following year. It also refused to disclose specific investors, only saying that investors were from the United States and Asia; Galaxy Digital also announced in 2021 that it would acquire BitGo for US$1.2 billion in stock and cash, but later suddenly announced the termination of the acquisition plan and attributed the reason to BitGo's failure to provide certain audited financial statements on time. For this reason, BitGo also sued Galaxy in 2022 with a lawsuit and sought US$100 million in compensation, but in the end the Delaware court determined that Galaxy's refusal to acquire BitGo was valid.
The minting scale has exceeded 9 billion US dollars, and MakerDAO plans to close WBTC lending
To date, WBTC has become one of the largest Bitcoin DeFi applications. According to the official website, WBTC has 74 partners and supports Ethereum, Base, Kava, Osmosis and Tron. Among them, WBTC occupies an absolute market share on the Ethereum network, and Dune data shows that it accounts for 94.7%.
At the same time, the official website shows that as of this writing, WBTC has minted more than 154,000 bitcoins (worth more than $9.04 billion), accounting for 0.78% of the total market value of Bitcoin. In terms of circulation, the supply of WBTC began to decline after reaching a peak of 235,000 in 2021, and gradually recovered in the second half of last year. From the perspective of application scenarios, Dune data shows that as of August 12, nearly 41.5% of WBTC was used in the lending ecosystem, and nearly 31.8% was used for direct transactions.
Judging from the data, WBTC plays an important role in the DeFi market, which also means far-reaching impact. For this reason, MakerDAO, the largest acceptor of WBTC, took the lead in "voicing" and proposed to initiate a proposal to reduce the scale of WBTC collateral to reduce potential risks, including the proposed closure of WBTC lending and reducing Spark's WBTC lending ratio to 0. It also pointed out that if BitGo or other relevant parties cannot convincingly prove the security of maintaining the existing WBTC collateral integration, it will consider further adjusting parameters to protect the protocol until the WBTC collateral on Maker and SparkLend is completely removed.
Jupiter co-founder meow even raised several soul-searching questions, “Bitcoin held in custody by WBTC should not be used for other purposes. For WBTC, the entire DeFi ecosystem, and BitGo/BiT Global, BitGo needs to clarify the following major issues to respond to community doubts, including who are the multi-signers holding BTC, whether BTC will be used for any purpose, how cross-jurisdiction helps, and whether it is possible to allow a very respected independent third party to join the multi-signature group.
Affected by this, WBTC has not yet experienced a significant depegging, but the FUD sentiment has not been quelled. Crypto KOL @BroLeonAus wrote that the possibility of WBTC being significantly depegged in the near future is very small, because the minting mechanism of WBTC determines that it is obtained by 1:1 collateral, unless the current custodian (BitGo) has a big problem (it will be out sooner rather than later). And if a large number of retail investors want to exchange WBTC for BTC in a short period of time, it may cause a depegging on CEX/DEX, but because there is more than one merchant issuing WBTC, there is a game, so in theory the depegging will not be too large. At present, BitGo has not clearly responded to the core issues such as the private key control of the newly established custodian company. The biggest risk at present is that Brother Sun has the private key of the BITGlobal custodian wallet. If any risks occur in this process, the final losses will be borne by the retail investors who pledged BTC to obtain WBTC.
“The doubts raised about WBTC due to the change in custody rights show that there is still a lack of a very reliable and decentralized cross-chain asset packaging solution on the chain. Despite the current widespread chain abstraction and liquidity integration, in fact, to establish security guarantees and trust, a consensus network that is no less powerful than BTC and ETH is needed,” said crypto KOL Chen Mo.
