DeFi Lending Giant Sky Sets Vote to Offload Wrapped Bitcoin as Justin Sun Concerns Linger
The action could impact $200 million of DeFi loans in the Sky ecosystem should the proposal pass.
Updated Sep 13, 2024, 9:42 p.m. Published Sep 12, 2024, 11:43 p.m.
Sky, the decentralized finance lender formerly known as MakerDAO, will vote on fully ditching wrapped bitcoin (wBTC) from its ecosystem, according to a Thursday governance post, potentially a major development in DeFi since the platform has $200 million of loans collateralized by the token.
WBTC is a token that allows investors to use bitcoin (BTC) on other blockchains, and plays a key role in lending DeFi as collateral, with a $9 billion market capitalization.
DeFi risk management firm BA Labs, an influential voice in the Sky protocol's governance, previously had proposed to reduce exposure to wBTC, due to perceived risks from Tron founder Justin Sun's involvement with the custodian for the underlying assets. Sky is one of the biggest DeFi projects and issuer of the $5 billion decentralized stablecoin DAI, so the development had been closely tracked by crypto analysts and blockchain industry watchers.
On Thursday, BA Labs proposed to gradually offboard all wBTC exposure from collateral assets in five steps, with the first one starting on Sep. 26. Each step will be voted on.
"We find that legal due diligence would not provide an adequate level of assurance," BA Labs said in its proposal.
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.
— Sky (@SkyEcosystem) September 12, 2024
According to the plan outlined by @BlockAnalitica, and pending governance approval, WBTC offboarding…
BA Labs recommended onboarding alternative products to the platform should the proposal pass.
Sun said in a statement: "As the most important liquidity pool for the Defi ecosystem, WBTC has served the global user community successfully with a sterling track record that is unmatched by any competing offers recently floated by the skeptics. "
Competitors energized
Currently, there are some $73 million worth of loans collateralized with wBTC on Sky-affiliated lending platform SparkLend, and some $127 million debt against wBTC in Sky's legacy vaults, according to the BA Labs post.
Tensions flared up around wBTC following crypto custody firm BitGo's announcement earlier this month that it planned to transition control of the asset to a joint operation with a custody platform called BiT Global.
The deal, which distributed control over the project's custody to three entities globally instead of just one, was cast as a way of helping to decentralize the operation.
According to an Aug. 9 press release, BiT Global is a global custody platform with regulated operations based in Hong Kong, registered as a Trust and Company Service Provider (TCSP), and is a "a strategic partnership between BitGo, Justin Sun, and the Tron ecosystem."
BitGo CEO Mike Belshe earlier this month defended the joint firm's autonomy from Sun and Tron.
Read more: BitGo CEO Says Wrapped Bitcoin’s Critics Aren’t Being ‘Intellectually Honest’ About Their Concerns
The drama around wrapped bitcoin has energized competitors offering alternative versions of the token, including dlcBTC, Threshold's tBTCand FBTC, which has the support of Mantle Network.
Notably, crypto exchange and custody giant Coinbase debuted its own wrapped bitcoin competitor earlier Thursday.
CORRECTION (Sept. 13, 2024, 21:42 UTC): Clarifies that the statement is from Justin Sun, not Tron.
Krisztian Sandor
Krisztian Sandor recently graduated from NYU's business and economic reporter program as a Fulbright fellow and worked with Reuters and Forbes previously. Originally from Budapest, Hungary, he is now based in New York. He holds BTC and ETH.
