On August 9, Bitgo announced its decision to transfer control of its Wrapped Bitcoin (WBTC) product to a joint venture with BiT Global. This new arrangement highlights Justin Sun’s significant sway through the Tron ecosystem. The move has sparked serious concerns due to the unfavorable developments associated with the Stablecoin TUSD, raising the risk level of WBTC to an unacceptable degree with this new partnership.
Bitgo’s Financial Struggles and Potential Risks
Bitgo’s abandonment of its planned acquisition by Galaxy Digital and the unexpected withdrawal from the WBTC product indicate the company’s financial troubles. This situation poses a negative outlook concerning counterparty risk, especially as WBTC collateral is crucial in the DeFi ecosystem, amplifying these risks further.
What Emergency Measures Are Needed?
BA Labs has suggested immediate actions for Maker and SparkLend in response to the heightened WBTC collateral risks. These actions include setting the maximum collateral limits for WBTC-A, WBTC-B, and WBTC-C to zero, halting WBTC borrowing, and lowering WBTC’s Loan-to-Value (LTV) ratio to zero. These measures aim to safeguard the protocol against potential risks from the new joint venture under Justin Sun’s control.
User-Usable Inferences
– Urgent action needed on Maker and SparkLend to mitigate new risks.
– WBTC’s critical role in DeFi ecosystems amplifies the importance of these measures.
– Justin Sun’s influence in the joint venture heightens risk levels.
According to monitoring data as of August 11, WBTC supports Ethereum, Base, Kave, Osmosis, and Tron networks, with Ethereum leading at 99.8%. Currently, 154,726 WBTC (approximately $9.45 billion) have been minted, representing 0.78% of Bitcoin’s total market value. Dune panel data shows over 41% of WBTC is used in lending ecosystems, mainly by MakerDAO, while around 32% is used for transactions.
WBTC, an ERC20 token on the Ethereum network, is pegged one-to-one with Bitcoin, with each WBTC backed by a Bitcoin held in reserve by a custodian managed by Bitgo. Introduced in 2017 and officially published in a White paper in 2019, WBTC has become a vital bridge between Bitcoin and Ethereum, with over $2.1 billion in BTC locked by 2020.