Sky Pauses Plan to Offboard Wrapped Bitcoin, After Chat With BitGo's Belshe

Sky, the decentralized finance lender previously known as MakerDAO, might be ready to pause its plan to offboard wrapped bitcoin (WBTC) as collateral, following a fresh recommendation from an influential advisor.

The development came after a lengthy discussion on the Sky discussion forum with Mike Belshe, CEO of BitGo, which was the sole custodian of the bitcoin backing WBTC until August, when a deal was cut to transfer custody to a strategic partnership with Tron founder Justin Sun.

WBTC is a token that allows investors to use bitcoin (BTC) on other blockchains, such as Ethereum, and often is at the center of the DeFi lending space as collateral. WBTC currently has a $9.7 billion market capitalization.

The influential Sky adviser, BA Labs, had expressed concerns about Sun's involvement with the project – a crucial consideration given that some $200 million of loans on the platform were in some way linked to WBTC collateral. Last week, Sky community members overwhelmingly voted to proceed with the adviser's recommendation to offboard WBTC as collateral, in a five-step process starting in early October.

But discussions over the matter continued even after the vote, with Belshe posting extensively in the forum in recent days that the new custody arrangement was misunderstood, and that Sun would not have the ability to singlehandedly make changes to the structure.

“They will not 'have the ability to direct changes to key management practices' at BitGo or BitGo Singapore,” two of the entities overseeing the multi-signature keys controlling the new custodian, Belshe wrote on Sept. 20.

Then on Tuesday, BA Labs wrote that “the additional details and clarity put us in a more comfortable position with the current state of WBTC operations and key management.”

The advisor noted that collateral exposure to WBTC had “fallen somewhat to current levels around $170 million of total borrowing,” reducing the risk to a “more acceptable range.”

“While we continue to have concerns about BitGlobal serving as a signer for WBTC, we find it is no longer at a level requiring immediate collateral offboarding,” BA Labs wrote. “Therefore, we recommend indefinitely pausing the collateral offboarding procedures.”

Wrapped bitcoin alternatives

Sun, in response to some of the concerns raised about his involvement with the project, had told CoinDesk that WBTC has a “sterling track record that is unmatched by any competing offers recently floated by the skeptics.”

The drama around wrapped bitcoin has energized competitors offering alternative versions of the token, including dlcBTC, Threshold's tBTCand FBTC, which has the support of Mantle Network. And on Sept. 12, Coinbase, the biggest U.S. crypto exchange and a custodian in its own right, debuted its own wrapped bitcoin competitor, cbBTC.