Introduction to the Proposal
The decentralized finance (DeFi) protocol Threshold has recently proposed a merger between its Bitcoin wrapper token, tBTC, and Wrapped Bitcoin (WBTC). This proposal aims to prevent a potential takeover by Justin Sun. Introduced on August 29, the initiative seeks to protect WBTC amid growing concerns about its management and control.
Concerns Over WBTC Management
Concerns regarding the control of WBTC surfaced following an announcement from BitGo, the custodian responsible for managing the Bitcoin reserves backing WBTC. On August 9, BitGo disclosed plans for a partnership with BiT Global, a Hong Kong-based cryptocurrency exchange. This partnership is intended to strengthen WBTC’s presence beyond the United States but has raised alarms due to BiT Global’s involvement in the multisignature wallet that safeguards WBTC’s Bitcoin reserves.
Justin Sun’s Controversial Role
The association of Justin Sun, a well-known and polarizing figure in the cryptocurrency sector, has heightened fears within the community. Many are concerned about the potential misappropriation of collateral due to Sun’s involvement with various projects. Given this backdrop, Threshold has proposed a shift from WBTC’s current centralized custody and merchant-based model to a decentralized system managed by the Threshold decentralized autonomous organization (DAO).
Threshold’s Proposal for Decentralization
Threshold’s proposal suggests a comprehensive overhaul of the existing WBTC management structure. The new model would transition control of WBTC to the Threshold DAO, aiming for a more secure and transparent process. Current market participants would lose their minting privileges, while tBTC holders would have the option to exchange their tokens for WBTC or native BTC on a 1:1 basis.
Market Impact of WBTC
WBTC is currently the leading Bitcoin wrapper in the market, boasting a market capitalization of around $9 billion, as per CoinMarketCap. This ERC-20 token plays a critical role in facilitating Bitcoin’s integration into DeFi applications on the Ethereum blockchain.
MakerDAO’s Consideration on DAI Minting
As discussions about WBTC’s management unfold, MakerDAO is assessing whether to stop minting its DAI stablecoin using WBTC as collateral. This scrutiny comes in the wake of previous operational issues with TrueUSD, a stablecoin affiliated with Sun, characterized by problems relating to transparency and reserve proof.
Risks Highlighted by BA Labs
BA Labs has pointed out the risks associated with Sun’s role in the new management structure of WBTC. They argue that unless BitGo and its partners can convincingly ensure the safety of current collateral arrangements, MakerDAO may need to consider completely offboarding WBTC. At present, approximately 10% of DAI’s total supply depends on WBTC as collateral, with significant amounts held in MakerDAO’s vaults and SparkLend protocol.
Justin Sun Addresses the Community
In response to the heightened scrutiny of his involvement, Justin Sun has taken to social media to reassure stakeholders. He claims that his role in WBTC is purely strategic and emphasizes that he does not have control over the private keys for the Bitcoin reserves backing WBTC.