Reassessing WBTC as Collateral in Decentralized Finance 🚀
Sky, once recognized as Maker, is currently revisiting its previous decision regarding the removal of Wrapped Bitcoin (WBTC) as collateral from its lending framework. This reassessment is driven by a recent recommendation from one of its primary advisors, BA Labs, following a thorough discourse on the governance forum for Sky.
On September 24, BA Labs proposed to halt the offboarding of WBTC, a significant shift that demonstrates the evolving landscape of decentralized finance and governance decisions.
Addressing Community Issues with Transparency 🤝
The recommendation from BA Labs came on the heels of a detailed discussion with Mike Belshe, co-founder of BitGo. Belshe focused on the community’s worries regarding the new management and custody structure surrounding WBTC. He reassured stakeholders about BitGo’s reliability, which includes maintaining control of signing keys and committing to provide at least 60 days’ notice ahead of any major changes.
Belshe emphasized that this notification standard was established to foster transparency and has been consistently applied to build trust and ensure the security of WBTC in the decentralized finance space. With these assurances from BitGo, BA Labs took a more favorable view of possibly keeping WBTC as collateral in the lending protocol.
A member of the BA Labs team, operating under the pseudonym “monet-supply,” remarked that given BitGo’s assurances and a reduction in WBTC’s total borrowing exposure to $170 million, the risks associated with this collateral have now become manageable. Monet-supply mentioned, “Although we are still wary of BitGlobal as a signer for WBTC, the situation no longer necessitates immediate offboarding of the collateral.”
In light of the current circumstances, the recommendation to pause the WBTC offboarding procedures will be brought to an executive vote on October 3. This decision could lead to a reversal of a prior ruling made on September 19, where there was significant majority backing for the collateral’s removal.
Concerns Over Competing Interests in Bitcoin Custodianship ⚖️
Earlier votes revealed that a considerable 88% of community members supported the move to offboard WBTC collateral through a methodical five-step plan set to start in October. This discussion was catalyzed by BitGo’s decision to transfer custody of WBTC to BitGlobal, a shift that raised serious concerns among those involved in the Sky ecosystem.
Belshe expressed discontent regarding the instances where WBTC is juxtaposed with Coinbase’s cbBTC. He underscored that cbBTC does not provide proof of reserves (POR), potentially introducing greater risks. He commented, “You’re suggesting we shift the existing, POR-mitigated risks to Coinbase, which has no POR and has claimed they will never implement such a system.”
BA Labs echoed the importance of maintaining proof of reserves to manage risks effectively in the context of WBTC, urging Sky to assess these risks in relation to those that may come from Coinbase’s alternative. Additionally, the team recommended adjustments to some lending structures within Sky, such as lowering liquidation penalties, refining liquidation ratios, and cutting fees associated with the liquidation process for Legacy Vaults and SparkLend.
A significant element of last month’s discussions revolved around concerns regarding Justin Sun—the founder of Tron—and his participation in the new structure governing WBTC. BA Labs had previously cautioned MakerDAO about the potential risks introduced by Sun’s involvement, suggesting a thorough reconsideration, if not complete offboarding of WBTC, unless BitGo and its collaborators can convincingly reassure stakeholders about the safety of existing collateral arrangements.
Hot Take: Navigating the Future of DeFi with Caution 🌐
This year, the journey for Sky and its governance team is fraught with challenges as they navigate through complex decisions surrounding WBTC. The back-and-forth discussions highlight a growing need for transparency and trust in the landscape of decentralized finance. Whether the offboarding proposal will be halted or will proceed remains to be seen, but engagement from community members and advisors like BA Labs underscores the importance of collaborative decision-making in this space.
As new recommendations and concerns arise, staying informed and cautious will be paramount for stakeholders invested in the future of decentralized finance and the protocols that underlie it.
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