TL;DR
- Sky is reconsidering its decision to remove Wrapped Bitcoin (WBTC) after a recommendation from BA Labs and clarifications from BitGo.
- BitGo commits to providing 60 days’ notice for any changes in WBTC custody, reducing the perceived risk.
- A new vote on October 3 will determine whether changes to liquidation and collateral policies in the protocol will be implemented.
Sky, the pioneering decentralized finance (DeFi) platform, is reconsidering its decision to remove Wrapped Bitcoin (WBTC) as collateral within its lending protocol after receiving a new recommendation from BA Labs, one of its key advisers.
On September 24, BA Labs proposed pausing the WBTC offboarding plan after an extensive discussion with BitGo co-founder Mike Belshe, who provided several clarifications regarding the management and custody of the assets backing WBTC.
BitGo, which was recently the sole custodian of the Bitcoin backing WBTC, raised concerns within the Sky community after announcing a partnership with BitGlobal, a company linked to Justin Sun. This led to a governance vote on September 19, in which 88% of the Sky community supported a plan to gradually eliminate WBTC from the protocol. However, after receiving new clarifications from BitGo, BA Labs recommended reassessing the situation.
BitGo Must Maintain 100% Transparency
BitGo committed to upholding a transparency standard, ensuring that any changes in WBTC custody will be publicly notified at least 60 days in advance. This commitment, along with a reduced exposure to WBTC to $170 million in total borrowing, led BA Labs to conclude that the current risk is manageable and that immediate removal of the collateral is unnecessary. Exposure to WBTC in SparkLend, one of Sky’s platforms, also decreased significantly, reaching $61 million.
In the discussion, Mike Belshe expressed frustration at the possibility of Sky opting for Coinbase’s cbBTC, a centralized option that does not offer proof-of-reserves. Belshe pointed out that this change could increase uncollateralized risk by up to one billion dollars, which could result in greater risk exposure for the platform.
On October 3, a new executive vote will decide whether to implement BA Labs’ recommended changes. In addition to reconsidering the offboarding plan, adjustments to liquidation policies are being suggested, including reducing penalties and adjusting fees applied to Sky’s lending products, such as Legacy Vaults and SparkLend.
