Sky Proposes Total Removal of Wrapped Bitcoin from DeFi Ecosystem

Sky Considers Removing Wrapped Bitcoin from Its Ecosystem

Sky, the decentralized finance (DeFi) lending platform formerly known as MakerDAO, is set to vote on a significant proposal to completely eliminate wrapped bitcoin (wBTC) from its ecosystem. This development was outlined in a governance post released on Thursday, and it could have far-reaching implications for the DeFi landscape, particularly given that Sky currently has $200 million in loans collateralized by this token.

wBTC serves as a bridge that allows investors to utilize bitcoin (BTC) across other blockchains, making it an essential component in DeFi lending as collateral, boasting a market capitalization of approximately $9 billion. Recently, BA Labs, a prominent risk management firm in the DeFi space, has emerged as a key voice in Sky’s governance, having previously proposed a strategy to reduce the platform’s exposure to wBTC. This recommendation stems from concerns regarding the involvement of Tron founder Justin Sun with the custodial services for the underlying assets.

As one of the largest DeFi projects and the issuer of the $5 billion decentralized stablecoin DAI, Sky’s decisions are closely monitored by crypto analysts and stakeholders in the blockchain industry. In its latest proposal, BA Labs suggested a phased approach to offboard all wBTC collateral assets in five distinct steps, with the initial step scheduled to commence on September 26. Each step of this process will be subject to voting.

“We believe that the legal due diligence conducted will not offer a sufficient level of assurance,” stated BA Labs in its proposal. The firm also recommended integrating alternative products into the platform should the proposal gain approval.

Market Response and Competitor Activity

As of now, there are approximately $73 million in loans backed by wBTC on Sky-affiliated lending platform SparkLend, along with around $127 million in debt associated with wBTC in Sky’s legacy vaults, according to the update from BA Labs. Tensions surrounding wBTC escalated earlier this month following an announcement from crypto custody firm BitGo, indicating plans to transition the control of the asset to a collaborative operation with a custody platform known as BiT Global.

This transition is designed to distribute the custody control of wBTC among three separate entities globally, rather than consolidating it under one, which is intended to enhance the decentralization of operations. According to a press release dated August 9, BiT Global is a custody platform with regulated operations based in Hong Kong and is registered as a Trust and Company Service Provider (TCSP). This initiative is a collaborative effort involving BitGo, Justin Sun, and the Tron ecosystem.

In defense of this joint operation, BitGo CEO Mike Belshe contended that the new firm operates independently from Sun and the Tron network, addressing concerns raised by critics.

BitGo CEO Defends Wrapped Bitcoin Amidst Criticism

The ongoing drama surrounding wrapped bitcoin has invigorated competitors who are now offering alternative versions of the token. Some notable alternatives include dlcBTC, Threshold’s tBTC, and FBTC, which has garnered support from Mantle Network. Additionally, crypto exchange and custody powerhouse Coinbase launched its own wrapped bitcoin competitor earlier on Thursday, further intensifying the competition in this sector.