Decentralized finance (DeFi) pioneer Sky, formerly Maker, is reconsidering its plan to offboard Wrapped Bitcoin as collateral for its lending protocol after receiving a new recommendation from key adviser BA Labs.
On Sept. 24, BA Labs recommended pausing the Wrapped Bitcoin (WBTC) offboarding plan following a lengthy conversation with BitGo co-founder Mike Belshe on Sky’s governance forum.
The move follows BitGo’s clarifications about changes in management or custody of WBTC, control of the signing keys, and a commitment to give advance notice of changes.
BitGo committed to providing at least 60 days of public written notice before any changes to entities controlling WBTC keys. Belshe emphasized that BitGo created this “60-day standard” and has always followed it.
BA Labs team member and DAO delegate “money-supply” said with these commitments in mind and overall WBTC exposure falling to $170 million in total borrowing, the collateral risk is in 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 [...] Therefore, we recommend indefinitely pausing the collateral offboarding procedures.”
The new recommendations will be put up for an executive vote on Oct. 3.
SparkLend exposure to WBTC has fallen to $61 million. Source: Spark Explorer
BitGo was the sole custodian of the Bitcoin backing WBTC until August, when it entered into a partnership with Tron founder Justin Sun’s BitGlobal to transfer custody, sparking concerns among the Sky community.
This led to a governance vote on Sept. 19 for a proposal to offboard WBTC collateral. The vote passed with 88% in favor of the platform removing its exposure to wrapped Bitcoin in a five-step process starting in early October.
Belshe’s responses indicated a level of frustration while emphasizing BitGo’s track record and commitments. He also questioned the logic of favoring Coinbase’s centralized cbBTC over WBTC:
“You’re proposing to move all the current WBTC, POR [proof-of-reserves]-mitigated risk to CB [Coinbase], when they don’t have POR and have said they won’t ever do it. That’s potentially adding $1 billion of uncollateralized risk against CB, and you think this is somehow less risky.”
Related: DeFi lending protocol Sky to drop wrapped Bitcoin after governance vote
BA Labs also discussed the importance and limitations of proof of reserves for WBTC and suggested comparing risks between WBTC and Coinbase’s cbBTC.
Other specific changes recommended included reducing liquidation penalties, adjusting liquidation ratios and lowering the liquidation protocol fee for Sky’s Legacy Vaults and SparkLend.
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