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Sky, formerly MakerDAO (a lending platform), plans to gradually remove Wrapped Bitcoin ($wBTC) from its ecosystem due to governance concerns related to Justin Sun’s involvement. Justin Sun has become a key player in $wBTC’s custody (through BiT Global) after a restructuring deal with BitGo, raising governance and legal assurance concerns. Sky’s removal of $wBTC will occur over several phases, with the first vote scheduled for September 26, 2024. Each phase will require community voting to proceed. The lending platform currently holds $200M in $wBTC-backed loans, and the decision could significantly affect borrowers and the broader DeFi market.
With a market cap of $9B, $wBTC plays a huge role in DeFi. But Sky – formerly MakerDAO – is considering dropping it.
What’s the problem with $wBTC? Let’s take a closer look at Justin Sun and Sky and the impact that Sky’s move might have on DeFi.
Why Is Sky Afraid of the Sun?
Sky, formerly known as MakerDAO (a leader in decentralized finance – DeFi), has initiated a governance proposal to gradually offboard Wrapped Bitcoin ($wBTC) from its ecosystem.
The company worries about the influence of Justin Sun, the controversial founder of the Tron blockchain, on the custody and governance of $wBTC.
Sun’s increased role stems from a recent restructuring deal with BitGo. Custody of $wBTC will now be split across three global entities – which now include BiT Global, Sun’s firm.
The $wBTC token (essential in enabling Bitcoin functionality on non-Bitcoin blockchains like Ethereum) plays a vital role in the DeFi space. It serves as collateral for numerous loans and liquidity pools.
However, the custody changes prompted BA Labs (a DeFi risk management advisory firm and partner in Sky) to push for a full $wBTC withdrawal from Sky’s ecosystem.
BA Labs highlighted concerns about legal assurances and governance under the new custodial structure, leading to a proposal to gradually reduce exposure to the asset.
In short, BA Labs and others seem concerned that Justin Sun could play a direct role in controlling the $wBTC reserves. Sun doesn’t have a perfect track record, and the BA team pointed to a similar situation with True USD ($TUSD).
Since TUSD was placed into Justin Sun’s control, it has seen market deterioration in operational processes and transparency…BA Labs Team
Sun pushed back on these claims on X.
Will those reassurances be enough? It’s hard to tell, though something tells us it might not be enough for Sky and Co.
The Sky Community Speaks
The offboarding process will have multiple stages, starting with a vote on September 26, 2024. Each step will involve further community input, allowing Sky to mitigate risks while transitioning its $200M in $wBTC-collateralized loans.
Assuming the move pans out, there’s sure to be disruption in the DeFi market. Key questions include:
What will happen to $wBTC? Will Sky suffer from losing $200M in $wBTC loans? Which competitors will fill $wBTC’s shoes?
Remember that wrapped Bitcoin (or wrapped anything, for that matter) has only been around since 2019, new even by crypto standards. $wBTC quickly became the leading tool for deploying Bitcoin on other blockchains, but the idea has already begun to spread.
Even before the news, Coinbase launched its own ‘wrapped’ Bitcoin, $cbBTC. Threshold also has $tBTC. Both are positioning themselves to capture some of $wBTC’s $9B market share as Sky begins the offboarding process.
Not coincidentally, Justin Sun recently weighed in on the suitability of $cbBTC as a $wBTC replacement. Spoiler: he’s not a fan.
Conclusion: DeFi Gets More Cautious
Will the storm blow over for Justin Sun and $wBTC? Perhaps.
However, the proposal could also set a new precedent for governance and risk management within the decentralized finance landscape.
One where founders and thought leaders like Sun take a back seat to function and utility. And for DeFi liquidity pools, there’s bound to be turmoil as market makers consider $wBTC alternatives.
Tech Report is one of the oldest hardware, news, and tech review sites on the internet. We maintain editorial independence and consider content quality and factual accuracy to be non-negotiable for our tech news coverage.
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