CDS Crypto News Wrapped Bitcoin (WBTC) Removal: Sky’s Response to Ownership Concerns
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Wrapped Bitcoin (WBTC) Removal: Sky’s Response to Ownership Concerns

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Wrapped Bitcoin (WBTC) Removal: Sky’s Response to Ownership Concerns

Wrapped Bitcoin- Sky’s Plan to Offboard WBTC: Risks, Alternatives, and Market Implications

Wrapped Bitcoin– The decentralized finance (DeFi) lending and borrowing platform Sky, formerly known as Maker, has proposed removing Wrapped Bitcoin (WBTC) as collateral within its ecosystem. This decision comes amid concerns over the token’s association with Justin Sun.

Governance Forum Announcement

On September 12, Sky’s team posted on the protocol’s governance forum, officially announcing their intention to offboard WBTC variants from SparkLend, Sky’s decentralized non-custodial liquidity protocol. The offboarding process will unfold in multiple steps through several executive votes, starting on September 26.

Current Exposure and User Advisory

SparkLend currently has $73 million in debt collateralized against WBTC, and legacy vaults hold $127 million in collateralized debts. The team advises users to close WBTC Legacy Vaults and WBTC positions on SparkLend to avoid potential liquidation.

Reasons for Offboarding

Wrapped Bitcoin (WBTC) Removal: Sky’s Response to Ownership Concerns
SparkLend

Sky’s decision is driven by recent changes in WBTC ownership and control, which are believed to involve Justin Sun or his affiliates. This association poses significant counterparty risks, given Sun’s track record with other products.

Risk Analyst Insights

In August, a partnership between crypto exchange BitGlobal and BitGo, the custodian of WBTC’s Bitcoin backing, raised concerns. Risk analyst and DAO delegate monet-supply argued that Sun or his affiliates likely control BitGlobal through concealed ownership structures.

Plan for Derisking and Alternative Strategies

Control of WBTC is expected to transfer to a new venture led by BitGlobal by October 8. Consequently, Sky aims to begin derisking collateral exposure by this date. Alternative strategies include exploring other BTC-denominated assets such as Coinbase’s cbBTC and Threshold’s tBTC, as well as investigating Bitcoin staking and restaking products.

FAQs

Why is Sky removing Wrapped Bitcoin (WBTC) as collateral?

Sky is removing WBTC due to concerns about its association with Justin Sun and his affiliates. Recent changes in WBTC’s ownership and control, along with Sun’s past track record with other products, have raised significant counterparty risks. Sky aims to mitigate these risks by offboarding WBTC.

What is the timeline for the removal of WBTC from Sky’s ecosystem?

The process to offboard WBTC from SparkLend will begin on September 26, 2024, and will occur in several steps over multiple executive votes. The full transition is expected to unfold gradually.

Wrapped Bitcoin (WBTC) Removal: Sky’s Response to Ownership Concerns

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