Sky, a decentralized finance lending and borrowing platform previously known as Maker, has announced its intention to phase out Wrapped Bitcoin (WBTC) as collateral within its ecosystem. The decision arises from growing concerns about the close ties between the token and Justin Sun, a prominent figure in the crypto community.
In a governance forum update dated September 12, the Sky team outlined a plan to remove WBTC variants from SparkLend, their decentralized liquidity protocol. The execution of the plan will unfold in multiple phases, beginning with a series of executive votes starting September 26. Users have been advised to close their WBTC Legacy Vaults and positions on SparkLend to prevent potential liquidation issues.
Currently, SparkLend has a total exposure of $73 million in debts secured by WBTC, while legacy vaults hold $127 million in collateralized debts. The team cited “recent changes in WBTC ownership and control” as a primary factor for the offboarding, indicating concerns related to previous behaviors linked to Sun-affiliated products and their associated risks.
Research into crypto exchange BitGlobal, which was previously known as Bithumb, identified potential ownership links to Justin Sun. Risk analysts highlighted that the custodian responsible for securing the Bitcoin underlying WBTC, BitGo, had announced a partnership with BitGlobal, elevating concerns about counterparty risks.
The control of WBTC is anticipated to transition to a new operation led by BitGlobal around October 8, 2024. A strategy to mitigate exposure to this asset is currently being formulated.
In light of these developments, alternative strategies for Bitcoin collateral are being explored. These may include both centralized and decentralized tokenized Bitcoin products such as Coinbase’s cbBTC and Threshold’s tBTC. The Sky and Spark teams are also assessing options for Bitcoin staking and restaking to provide viable alternatives. Presently, the total supply of wrapped Bitcoin on the Ethereum network is approximately 152,958, with a market capitalization of around $8.8 billion. This represents a significant decline from its all-time high of $15.8 billion in November 2021.
