TL;DR
- Sky proposes to withdraw WBTC from its loans and collateral due to risks associated with BitGo’s custody of the asset.
- The recent redistribution of BitGo’s multi-sig keys to third parties has raised concerns about the security of the underlying BTC.
- The proposal coincides with the launch of Coinbase’s cbBTC, which could replace WBTC in the Sky Lend ecosystem.
Sky Ecosystem, formerly known as MakerDAO, has proposed a vote to withdraw Wrapped Bitcoin (WBTC) from its lending and collateral facilities, citing risks associated with the asset’s management.
The decision comes amid growing concerns over WBTC’s multi-sig wallets managed by BitGo, which recently decided to redistribute some of these keys to external institutions. The transfer of control, scheduled for October 8, has raised doubts about the security and management of the underlying BTC, prompting Sky to take steps to mitigate potential risks.
If you are a user with WBTC collateral in Legacy Vaults (WBTC-A, WBTC-B, or WBTC-C) or SparkLend, please be aware of the WBTC offboarding proposal initiated by @BlockAnalitica.
According to the plan outlined by @BlockAnalitica, and pending governance approval, WBTC offboarding…
— Sky (@SkyEcosystem) September 12, 2024
WBTC has been an important source of income for Sky and MakerDAO vaults; however, concerns around its custody have led to the perception of the asset as a potential contagion risk or reputational loss.
Despite publishing proof of reserves, the recent association of BitGo with Justin Sun, founder of Tron, has only intensified concerns. Sun has denied having access to private keys or the ability to move the underlying BTC, stating that his involvement is purely strategic, but these assurances have not eased the community’s doubts.
Sky Establishes a Two-Phase Exit Plan
Sky has designed a two-phase process to gradually remove WBTC from its ecosystem. In the first stage, users will be able to unwind their loan positions voluntarily. However, a second phase has been proposed where liquidation conditions would become more stringent, including a potential forced liquidation of all loans within three weeks if conditions demand it.
Additionally, the proposal coincides with the recent launch of Coinbase’s new token, cbBTC, its own version of Wrapped Bitcoin, which could replace WBTC in Sky Lend positions.
Currently, WBTC remains the leading tokenized BTC asset on Ethereum, representing over 96.6% of BTC on the chain and being distributed across multiple protocols on Ethereum, Solana, Optimism, Arbitrum, and others. Despite its widespread adoption, its fragmented supply and the recent custody transfer to BitGlobal raise new concerns about counterparty risk and the difficulty of fully unwinding the asset across all chains.
