Sky Protocol Votes to Remove Wrapped Bitcoin as Collateral Amid Custodian Concerns - Blockonomi
by Oliver Dale · BlockonomiTLDR:
- Sky (formerly MakerDAO) voted to remove wrapped Bitcoin (WBTC) as collateral
- The vote passed with 88% approval
- Concerns arose due to WBTC custodian BitGo’s partnership with Justin Sun-affiliated BitGlobal
- Sky will offload WBTC in phases from October 3 to November 28
- Other DeFi platforms like Aave are also considering reducing WBTC exposure
The decentralized finance (DeFi) lending protocol Sky, formerly known as MakerDAO, has voted to remove wrapped Bitcoin (WBTC) as collateral from its platform.
The decision comes after a three-day governance vote that concluded on September 19, 2024, with an overwhelming 88.17% approval from the Sky community.
The vote was initiated following concerns raised by BA Labs, an advisor to the Sky protocol, regarding recent changes in WBTC ownership and control.
These concerns stemmed from the August 2024 announcement that BitGo, the original custodian for WBTC, would transition control of the asset to a joint operation with BiT Global, a company affiliated with Tron founder Justin Sun.
Sky’s decentralized non-custodial liquidity protocol, SparkLend, currently has $61.38 million in WBTC-backed collateralized debts. The protocol will now proceed with offloading WBTC in multiple phases, starting on October 3 and concluding on November 28, 2024.
The decision to remove WBTC as collateral is significant, given that Sky has approximately $200 million in loans collateralized by the token. WBTC is one of the largest cryptocurrencies, with nearly $10 billion in circulation, allowing investors to use Bitcoin on other blockchains, such as Ethereum.
Justin Sun defended WBTC in response to the concerns, stating that “WBTC, USDT, and Tron have nothing to do with any Chinese regulations.” He also emphasized WBTC’s “sterling track record that is unmatched by any competing offers recently floated by the skeptics.”
Despite Sun’s assurances, the Sky community moved forward with the vote to offboard WBTC. The protocol is now considering alternative forms of wrapped Bitcoin for collateral, including Coinbase’s cbBTC and Threshold’s tBTC.
Sky is not alone in reconsidering its exposure to WBTC. On September 18, a request for comment was posted on the Aave governance forum to reduce wrapped Bitcoin exposure, citing similar concerns over BitGo’s partnership with BiT Global. Aave, the largest DeFi lender, has around $990 million in debt exposure to WBTC.
However, Aave founder Stani Kulechov clarified that “Aave is not offboarding wBTC, this is a proposal from one of the risk providers to cap wBTC.” The Aave community appears to be less convinced of the need to offboard WBTC as collateral compared to Sky.
The total supply of wrapped Bitcoin on Ethereum currently stands at around 152,942 WBTC, with a market cap of approximately $9.6 billion. This represents a decrease of almost 40% from its peak of $15.8 billion in November 2021.
The phased approach to offboarding WBTC from October 3 to November 28 allows for a gradual transition, potentially minimizing market disruptions.