The decentralized finance (DeFi) protocol Threshold has put forth a proposal to merge its Bitcoin wrapper token, tBTC, with Wrapped Bitcoin (WBTC) in order to protect the latter from a possible takeover by Justin Sun. The proposal, introduced on August 29, is aimed at safeguarding WBTC in light of concerns regarding a potential shift in control of the widely used Bitcoin wrapper. These concerns arose following an announcement by BitGo, the custodian managing the Bitcoin reserves backing WBTC, regarding a partnership with BiT Global, a Hong Kong-based cryptocurrency exchange. The partnership involves BiT Global gaining partial control of the multisignature wallet that holds the Bitcoin reserves for WBTC, which has raised alarms in the community due to fears of potential misappropriation of collateral associated with Sun’s affiliated projects.
As the most popular Bitcoin wrapper with a market capitalization of approximately $9 billion, WBTC is a significant asset in the DeFi space. Bitcoin wrappers like WBTC are ERC-20 tokens that represent Bitcoin on the Ethereum blockchain, enabling BTC to be utilized in various DeFi applications. The proposed merger would involve transferring control of WBTC to the Threshold decentralized autonomous organization (DAO) by replacing WBTC’s current centralized custody and merchant-based minting and burning model with Threshold’s decentralized custody and permissionless mint/redeem mechanism. This change seeks to offer a more secure and transparent management model for WBTC, effectively negating the potential risks associated with Sun’s involvement.
Furthermore, MakerDAO is currently evaluating whether to pause the minting of its DAI stablecoin using WBTC as collateral in response to the restructuring plans outlined by Threshold. Concerns have been raised by BA Labs regarding Sun’s involvement in the new WBTC management structure, citing previous issues with TrueUSD, a stablecoin linked to Sun, which experienced operational and transparency problems after being sold to a Sun-affiliated group. MakerDAO and Spark are advised to consider fully offboarding WBTC unless BitGo and its partners can unequivocally demonstrate the safety of the current collateral arrangements. At present, around 10% of DAI’s token supply is backed by WBTC, with MakerDAO’s vaults holding $500 million worth of the token, and $289.3 million worth of WBTC is deposited in SparkLend, accounting for 7% of the protocol’s total value locked.
Justin Sun has responded to concerns regarding his involvement in WBTC by stating on social media that his role in the project is strategic and that he does not control the private keys to WBTC reserves. Despite Sun’s reassurance, the community remains wary of his affiliations and the potential risks they pose to the security and transparency of WBTC. Threshold’s proposal to decentralize WBTC and transfer control to the DAO signifies a shift towards a more secure and transparent management model for the widely used Bitcoin wrapper. By deprecating its own tBTC wrapper and offering holders the option to redeem their tokens for WBTC or native BTC, Threshold seeks to protect the integrity and stability of WBTC in the face of potential threats posed by external influences.
