Sky, previously known as Maker, has suggested removing Wrapped Bitcoin as collateral within its ecosystem due to the token’s close association with Justin Sun.
In a post on the protocol’s governance forum on September 12, Sky’s team announced that it would officially discontinue Wrapped Bitcoin (WBTC) variations on SparkLend, its decentralized non-custodial liquidity protocol.
The offboarding process is anticipated to commence on September 26, as per the proposal put forth by the BA-Labs team on September 12. The process will be undertaken in a series of steps involving multiple executive votes.
It recommended that users terminate their WBTC Legacy Vaults and WBTC positions on SparkLend to prevent liquidation.
Legacy vaults have $127 million in collateralized debts, while SparkLend has a current exposure of $73 million in debt collateralized against WBTC.
The team justified the offboarding by referencing “recent changes in WBTC ownership and control, likely involving Justin Sun or affiliates.”
In addition, it stated that this presents “substantial counterparty risks” due to the prior performance of other Sun-affiliated products.
A risk analyst and DAO delegate “money-supply” wrote that it was “highly likely” that Justin Sun or affiliates control BitGlobal, with ownership concealed through shell companies and nominee directors, citing the August partnership between crypto exchange BitGlobal and BitGo, the custodian holding the Bitcoin backing WBTC.
Monet-supply continued, “Justin Sun-affiliated stablecoins and custodial products have a significant negative track record and pose elevated counterparty risk.”
“Given evidence of concealment and concerns about validity of previous disclosures for Sun affiliated entities and products, we find that legal due diligence would not provide an adequate level of assurance.”
“We have determined that legal, due diligence would not provide an adequate level of assurance, given the evidence of concealment and the concerns regarding the validity of previous disclosures for Sun-affiliated entities and products.”
The new venture led by BitGlobal is anticipated to assume control of WBTC as early as October 8. Consequently, they intend to begin derisking collateral exposure at this time.
Substitute strategies for Bitcoin collateral were proposed, such as substituting BTC-denominated assets to account for the gap.
Coinbase’s cbBTC and Threshold’s tBTC products are examples of centralized and decentralized tokenized Bitcoin products. Additionally, Sky and Spark would examine Bitcoin staking and restaking products.
The order book indicates approximately 152,958 wrapped Bitcoin on Ethereum, with a roughly $8.8 billion market capitalization. This figure is down 44% from its peak of $15.8 billion in November 2021.
