Decentralized finance (DeFi) lender Sky, formerly known as MakerDAO, is reconsidering its plan to not use Wrapped Bitcoin (WBTC) as collateral following a key meeting with BitGo CEO Mike Belshe.
The decision comes following ongoing concerns over the custody of Bitcoin underpinning WBTC and advice from Sky’s influential advisor BA Labs.
WBTC, a token that allows Bitcoin (BTC) to be used on other blockchains like Ethereum, is widely used as collateral for DeFi loans. WBTC currently has a market cap of $9.7 billion. BitGo, which was the sole custodian of Bitcoin that initially supported WBTC, sparked concerns in the Sky community in August when it transferred that responsibility to a strategic partnership with Tron founder Justin Sun.
BA Labs had raised alarms over Sun’s involvement, particularly given that $200 million worth of loans on Sky’s platform were linked to WBTC collateral. Last week, the Sky community voted in favor of the advisor’s recommendation that WBTC be phased out starting in October.
But the discussions continued, and Belshe addressed the community directly on Sky’s forum. Belshe explained that Sun would not have unilateral control over the custody arrangement, and that BitGo and BitGo Singapore, which oversee the multi-signature keys for the new custodian, would maintain operational independence. Belshe assured that “BitGo or BitGo Singapore will not have the ability to ‘make changes to key management practices’.”
On Tuesday, BA Labs acknowledged the additional clarification provided by Belshe, stating that they were now more comfortable with the current state of WBTC operations and key management. The advisor also noted that exposure to WBTC collateral had decreased to approximately $170 million in total borrowing, reducing risk to more acceptable levels.
“While we remain concerned about BitGlobal serving as a signer for WBTC, we no longer believe the collateral is at a level that warrants immediate removal,” BA Labs said, suggesting an indefinite pause in the removal process.
The decision to retain WBTC as collateral comes amid increasing competition in the Wrapped Bitcoin market. Various alternatives such as dlcBTC powered by Mantle Network, Threshold’s tBTC, and FBTC have begun to gain traction. In a related development, Coinbase recently launched its own Wrapped BTC competitor, cbBTC, further intensifying competition in the space.
*This is not investment advice.
