In a surprise plot twist for the DeFi ecosystem, Threshold has proposed to merge its Bitcoin wrapper token, tBTC, with Wrapped Bitcoin amidst a probable takeover by the divisive crypto figure of Justin Sun.
Justin Sun Involvement Raises Concerns
The proposal was introduced on August 29, amidst the growing concerns over a likely shift in the majority control of WBTC. These have surfaced after an announcement on August 9 this year by BitGo – the custodian tasked with the management of the Bitcoin reserves backing WBTC.
BitGo announced it was going to collaborate with the Hong Kong-based cryptocurrency exchange BiT Global. The deal aimed at the expansion of WBTC outside of the US drew concerns over the fact that BiT Global is going to be a party in the multisignature wallet that keeps the reserves of WBTC. The crypto community has taken up the issue of involvement of Justin Sun, proponent of Bit Global and questions the possibility of misappropriation of collateral backing WBTC.
Threshold’s Decentralized Solution
In line with those concerns, Threshold has proposed a very different future for the management of WBTC. This proposal replaces WBTC’s centralized custody with Threshold decentralized custody and permissionless mint/redeem mechanism. It would, in words, place control of WBTC in the hands of the Threshold DAO, promising much greater security and better transparency in its management.
WBTC is the most popular Bitcoin wrapper, with its market capitalization at around $9 billion. Bitcoin wrappers, like WBTC, are ERC-20 tokens representative of Bitcoin on the Ethereum Blockchain. Thus, this makes BTC workable on DeFi applications.
This would put full control of the minting and redeeming processes of WBTC in the hands of Threshold’s DAO, with current merchants having their privileges taken away under the new proposal. Threshold also plans to sunset the tBTC wrapper and allow its holders a chance to redeem the token 1:1 for WBTC or native BTC.
MakerDAO Considers Restricting DAI Minting Against WBTC
The proposal has also gathered responses from MakerDAO, a leading DeFi protocol that considers halting the minting of its DAI stablecoin against WBTC as collateral. MakerDAO’s response is rooted in recent history with TrueUSD-another stablecoin that has been linked with Sun and has struggled with operational and transparency issues since its sale to a group affiliated with Sun himself.
These included the suspension of real-time proof of reserves, price volatility, and disrupted redemption services. BA Labs, an influential partner in MakerDAO, asserts that a significant risk comes from Sun’s position in WBTC’s management structure. They’ve proposed that MakerDAO and its lending platform Spark consider complete offboarding of WBTC unless BitGo and its partners can offer satisfactory assurances that the current collateral arrangements are safe.
Currently, WBTC collateralizes about 10% of the 5.2 billion token supply in circulation, while MakerDAO vaults hold the token worth $500 million. Further, SparkLend, another DeFi protocol, has deposits worth $289.3m worth of WBTC, representing 7% of its $4.1 billion total value locked.
Justin Sun Responds to Fears
Within this vein, Justin Sun has also come out to clear the air that his exposure to WBTC is strategic and that he does not hold the private keys to the underlying WBTC reserves. However, despite Sun’s reassurance, the crypto community is wary of keenly focused eyes as they look onto the developments of the proposed merge, which would in any case determine the future of the WBTC and the entire DeFi ecosystem.
